Broker tips: Greene King, Greencore Group, NEX Group
Analysts at Morgan Stanley took a look at pub group Greene King on Friday, saying the firm's decision to support its dividend meant it was time to "Greene light" an upgrade for the brewer and landlord's shares.
Morgan Stanley upgraded to 'overweight' from 'equal-weight' and upped its price target to 640p from 610p.
Analysts pointed out that, while the outlook for UK pubs and restaurants was "set to remain tough", it felt that Green King's like-for-like sales underperformance would begin to narrow in its next financial year.
New analysis of the pub group's debt securitisations suggested that its dividend would be "secure moving forward".
With a dividend yield of 7% close to a price/earnings ratio of 8x, "a lot of bad news is priced in," the analysts noted.
Greene King had been preyed on by short sellers hoping for a repeat of 2016 when the firm's share price fell 20% as traditional drinking holes continued to see sales dented in the wake of the 2007 smoking ban.
Analysts at Berenberg checked out Irish convenience food firm Greencore Group after its recent profit warning.
Berenberg reiterated its 'buy' rating but lower its target price on Greencore to 225p from 250p after the shares dived 30% in one week to under 130p when management downgraded guidance on earnings per share.
The reduced guidance was due to "company-specific factors" in the US, which allowed Greencore's shares to be given another chance by Berenberg, where analysts said "we admit that we have been too sanguine about near-term earnings", while acknowledging that "credibility in the story and management is at a low".
But the shares, at current levels of 7.5 times calendar 2019 EPS and with the enterprise value 6.3 times EBITDA, the market is pricing Greencore "for a disaster".
"While the US growth rates have disappointed to date, with lumpy volume ramp-up, we believe the core business is sound (and sticky), legacy problems are being dealt with and debt covenants are at little risk. We model several scenarios in this note but take a more conservative base-case outlook than previously," Berenberg's Friday morning research note read.
Analysts noted that half the downgrades had been triggered by operating losses at underutilised legacy assets, which were now in the process of being scrapped and that while the ramp-up of hoped-for new volume wins was pushed back around six months, Greencore's UK profit outlook was unchanged.
And lastlym analysts at Numis upgraded their recommendation for shares of NEX Group on Friday from ‘hold’ to ‘add’, citing the possible purchase of NEX by US giant CME Group.
Inter-dealer broker NEX, formerly known as ICAP, received a preliminary approach from CME overnight and early stage talks between the two companies are ongoing regarding a purchase which Numis analysts said was "expected to be at a premium to the current share price".
While awaiting "further developments" and reflecting that premium, the broker also revised its target price for NEX to 800.00p, even as share prices rocketed up over 30% on Friday to 875.50p.
Its prior target price of 671p valued NEX's equity at £2.55bn.
The broker note continued to forecast sales growth of 8% by the end of the company’s financial year in March and further 7% growth for the 2019 financial year.
Analysts at Numis said: "We have previously highlighted that the company would make an appealing acquisition target as financial infrastructure continues to consolidate. We have mentioned LSE as being a strong candidate as a suitor, but other names could include Deutsche Borse, or Singapore’s SGX."