Broker tips: Howden Joinery, Bunzl, Big Yellow

Analysts at Canaccord Genuity slightly lowered their target price on joinery products supplier Howden Joinery from 525.0p to 523.0p on Tuesday, stating that growth and capital returns remained "on pause".

Canaccord cut its estimates to reflect recent sector news-flow and relevant industry trends and now expects profits to "fall sharply" in 2020 before rebounding strongly in 2021.

In the current year, Canaccord expects to see a sharp fall in profits, no dividends and a suspension or cancellation of the group's share buyback programme, as well as a curtailment of growth investment.

"Clearly the key issues now are how quickly profits can recover, when capital returns resume and investment in growth returns. With a focus on cash, new depot openings have been suspended for now and capex cut," said the analysts.

The Canadian broker stated that while it was "relatively cautious: on the outlook for underlying demand into 2021, given the big-ticket nature of a kitchen renovation, it does expect it to recover broadly in line with repair, maintenance and improvement trends.

As revenue recovers in 2021, the analysts also expect "a strong bounce in profit" - with dividends and growth investment resuming in 2021.

However, even on its revised numbers, Canaccord said Howden's valuation continued to look "relatively full" and opted to reiterate its 'hold' rating on the group.

Deutsche Bank upped its price target on shares of distribution group Bunzl to 2,175p from 1,920p after the company’s latest trading statement.

The German bank said the update was "better than feared", with revenue resilience and margin progression in the first half.

DB said the dynamics are in line with what was previously indicated by the company, with foodservice and retail suffering from government lockdowns but some offset in the grocery and safety, cleaning & hygiene segments.

"However, the offset is much stronger than expected leading to positive organic growth in Q2 (previously expected significantly down)," it said.

Bunzl said on Monday that first-half revenue was expected to increase by around 6% at both actual and constant exchange rates.

Deutsche has a ‘buy’ rating on Bunzl shares.

Berenberg downgraded its stance on shares of self-storage company Big Yellow to ‘hold’ from ‘buy’ on Tuesday, with the share price now closer to its fair value after the stock rallied 21% since the bank’s upgrade note in March.

"For the longer term, we believe the company’s outlook is exceptional, with structural growth tailwinds in UK self-storage, and the likelihood that future land opportunities will emerge from the current crisis," Berenberg said. "However, it is less clear what the next catalyst will be for shares, with limited room for a re-rating and little chance for a positive earnings surprise. As a result, we downgrade our recommendation."

The bank said near-term upside has been largely realised from the company’s re-rating since lows in March.

In addition, Berenberg said it has brought its estimates down by 3% to 7% following the equity raise in April and full-year results in June.

"In our view, the company is more protected and much better understood by investors as the UK looks ahead to a likely weaker economic outlook following the Covid-19 pandemic.

"This is evidenced by both its recent trading (which has remained remarkably stable since the start of the UK’s lockdown) and the rapid share price recovery after falls in March, as the market quickly realised the opportunity to invest in Big Yellow’s highly reliable long-term growth story."

Berenberg maintained its 1,050p price target.