Broker tips: Hammerson, Diploma, Go-Ahead, Stagecoach

Analysts at JPMorgan slashed their target price on real estate investment trust Hammerson from 185.0p to 30.0p on Wednesday, stating the group appeared to be "two to three years away" from pursuing its value-enhancing strategy.

JPMorgan stated that in order for Hammerson to implement its strategy, confidence in UK shopping centre values were required, as were disposals and "sustainable" rental levels.

At current levels, JPM said the shares "certainly" represented option value on a positive outcome, but said it still believes that much remains ahead of the company.

The analysts came to their new target price after they adjusted their model to incorporate proceeds from Hammerson's latest rights issue and disposal, as well as further asset disposals of £500.0m per annum in the next four years, the stock's higher share count and lower capital values for UK flagships.

"In our view, new CEO Rita-Rose Gagné has plenty of time to evaluate the next steps. As laid out above, the bottom in market asset values, disposals and rent rebasements are likely to take 24-36 months minimum to achieve and we see these factors driving the discount direction going forward," concluded JPM, which also maintained its 'neutral' rating on the stock.

JPMorgan also downgraded Diploma to ‘neutral from 'overweigh'’ on Wednesday following "a surprisingly strong" share price reaction to the Windy City Wires acquisition.

The bank said that while the acquisition is appealing, the share price is now 28% higher, versus earnings per share accretion of 13%.

"We are also conscious of the impact of lower return on capital employed M&A on the group’s earnings growth potential," it said, adding that it has made no changes to its forecasts.

Elsewhere, HSBC lifted its ratings on Go-Ahead and Stagecoach as it took a fresh look at UK bus and rail operators.

The bank, which upgraded both Stagecoach and Go-Ahead to 'buy' from 'hold', said the sector is extremely cheap.

"The sector has been here three times before and it’s rebounded," HSBC said.

"It’s true that some verticals (eg UK bus) could take time to see a recovery, but they are being underpinned by government support which we expect to remain until the sector returns to profit.

HSBC said that while earnings may not get back to last year's levels, they don’t need to for the value to be clear. "With all operators generating cash, we do not see risk of business failures," it said.

The bank added that while some investors may be put off by the companies' domestic focus, they should survive and some sort of recovery should be possible as social distancing measures are eased.