Broker tips: IHG, Crest Nicholson, Lloyds

Jefferies downgraded its stance on shares of InterContinental Hotels to ‘hold’ from ‘buy’ on Thursday and cut the price target to 4,100p from 4,400p as it took a look at the hotels sector.

The bank noted the shares now trade on 9.6x FY22 estimates, which is "a fair multiple given the economic uncertainty".

Still, it said IHG is the best-positioned hotel stock in its coverage due to the company's franchise business model.

"With 95% of profits from fee business and 80% of fee revenue linked to hotel revenues, IHG has the lowest operating leverage," it said.

It highlighted several reasons why the company is well positioned. It said 70% of open rooms are in the mainstream segment, which outperformed upscale/luxury during the financial crisis, while IHG also has high exposure to domestic demand, with 85% of US estate in non-urban markets.

In addition, it said the hotel chain has low exposure to large groups and events.

"That said, we feel that this is now reflected in the share price," Jefferies said, adding that the stock is down only 26% year-to-date versus European peers down between 37% and 50%.

Canaccord Genuity has upped its recommendation on Crest Nicholson to ‘buy’ following its interim results.

The housebuilder said on Wednesday that the Covid-19 pandemic had “significantly” impacted its first-half performance, with revenues down 52% and adjusted pre-tax profits tumbling 93%. The number of completed homes, forward sales and the open market average selling price all fell.

But in a note published the following day, Canaccord said: “While there remains material macro uncertainly, management hopefully provided profit guidance for the full year, which implies a sharp profit increase in the second half on that delivered for the first.

“Liquidity and the balance sheet look comfortable.”

It continued: “Management has also assumed that house prices fall by 7.5%, which results in an inventory impairment that arguably makes the net asset value estimate now more robust to macro risks.”

Canaccord also pointed to “operational efficiencies and other strategic initiatives, which should lead to a better quality business in the medium term”.

The bank conceded that macro and Covid-19 risks were likely to weigh on the share price in the near term. But it concluded: “the valuation combined with the asset write-down taken should provide a degree of extra valuation comfort. We nudge our price target down to 260p and upgrade to ‘buy’.”

Previously, Canaccord had a ‘hold’ recommendation and a price target of 205.0p on the stock.

Analysts at Jefferies cut their target price for shares of Lloyds from 47.0p to 42.0p, arguing that its revenue profile was ill-suited to current market conditions - but kept their recommendation at a 'buy'.

Ahead of the lender's first half numbers on 30 July, they slashed their estimates for full-year profits before tax through 2020 by about 10% on average.

Non-interest income was now seen 6% lower over the first half of 2020 and declining by 3% in outer years.

The latter downgrades were chiefly the result due to a now lower expected base for net interest income, while net interest margins were expected to be 10 basis points lower than before due to both 'mix effects' and the flatter government bond yield curve.

However, they conceded that the mix effects and flatter yield curve might both prove transitory.

They also expected Lloyd would provide clarity around its expected full-year impairment charges for 2020 and a steer on revenues, given the wide dispersion among analysts' estimates.

For their part, Jefferies had penciled in full-year underlying profits of £2.6bn, a net interest margin of 2.58% and £4.7bn-worth of impairment charges.

Costs were pegged at £8.6bn or £7.6bn after lease depreciation costs.

For the first half, Lloyd's group loan balances were seen down by 1%, net interest margins off by two basis points and 'other income' declining by 16%.

A further £3.2bn of credit charges were anticipated for 2020.