Broker tips: Fevertree, BT, Centrica

Analysts at Berenberg raised their target price on drinks maker Fevertree's shares from 2,250.0p to 2,350.0p on Tuesday after the group managed to consistently achieve "impressive" off-trade sales growth since the pre-lockdown stockpiling period.

In Berenberg's view, Fevertree's sales growth highlights the brand's strength in more established regions and also provides "encouraging signs" for the expansion potential in growth markets.

The German bank also thinks continued investment behind the brand will help to drive "a considerable increase" in sales and profits in future years.

Although Berenberg modestly reduced its 2020 earnings estimates for Fevertree by 4% it raised them slightly for future years and reiterated its 'buy' rating on the group.

"Over the following years, we assume the gross margin rebounds moderately and operating costs come down as a percentage of sales, leading to our 2022 profit forecasts rising by circa 2%," said the analysts.

Barclays lifted its stance on BT to 'equal-weight' from 'underweight' on Tuesday, upping the price target to 130p from 115p as it said Openreach’s plans to build fibre-to-the-premises for 20 million homes over the next five to 10 years will be a positive.

"The challenges are to firstly secure favourable regulation (largely done), then build it (already well underway), and now to secure scale wholesale deals with the major UK service providers," Barclays said, adding that this could happen shortly.

"It would, in our view, likely be taken positively, and with telcos generally performing well this quarter we see positive catalysts ahead, and we upgrade our rating."

Still, Barclays said there are medium-term risks from both consumer pricing and fibre overbuild which could threaten longer-term free cash flow.

Analysts at Jefferies upgraded energy services and solutions company Centrica's shares to 'buy' on Tuesday, stating the group now appeared to be "taking back control".

Jefferies said the disposal of Centrica's US business for £2.85bn was, in its view, "transformational" and showed management was taking back control after "an uncontrollable period".

The analysts also pointed out that the first-half Covid-19 hit to the group of £60m was lower than it expected - resulting in a 25% cut to the pandemic's overall estimated impact and leaving Jefferies confident in Centrica's ability to weather the second-half storm.

With this and a recovery in commodity prices, Jefferies increased its 2020-21 earnings per share forecast for the group by 25% despite deal dilution.

Jefferies also highlighted that Centrica was up 20% since the disposal announcement but still remained at a 45% discount to the sector as a whole.