Broker tips: Inmarsat, GVC Holdings, ASOS

Broker Jefferies reiterated its 'buy' recommendation on Inmarsat, sparked by reports that AirAsia has chosen the satellite company as a 'connectivity provider' for the carrier's newly announced Airbus fleet.

AirAsia announced at the Farnborough Air Show on Tuesday that it had ordered 100 A321neo planes from Airbus, with industry experts suggesting on social media that an "L-band" service has been chosen for the in-flight connectivity.

"Given AirAsia has been working with roKKi since 2014 for its in-flight connectivity service, and roKKi is powered by Inmarsat's SwiftBroadband service, it appears to us that Inmarsat has been chosen," Jefferies said.

This gives welcome visibility on medium term L-band growth for the FTSE 250 company.

"While not a plank to the all-critical Global Xpress revenue guidance, it is nonetheless welcome visibility on future growth," analysts said, with it positioning Inmarsat well with AirAsia for the point at which the carrier looks to move to a higher throughput service.

Jefferies set a 1,245p price target on Inmarsat's shares, well above their near-800p level on Wednesday.

GVC Holdings shares gained on Wednesday as Canaccord Genuity reiterated a ‘buy’ rating on the stock and lifted its target price to 680p from 615p.

In a trading update, the online gambling company reported 11% increase in like-for-like revenue in the six months to 30 June, supported by favourable results in the Euro 2016 football tournament and particularly strong growth in both wagering and gaming in the second quarter.

With the acquisition of Bwin.party completed on 1 February, GVC will gain a premium listing on the full list of the London Stock Exchange in August and looks likely to be added to the FTSE 250 at the next quarterly review.

The trading statement from GVC, ahead of its interim results announcement in September, confirmed total net gaming revenue (NGR) on a reported-currency pro forma basis, which treats revenue as if Bwin had been acquired in January, was up 8% to €439m. Or on a reported basis, as Bwin in fact joined a month later, it was up 223% to €388m.

“Management is clearly beginning to drive meaningful revenue synergies from the bwin.party acquisition, on top of its targeted €125m of cost savings,” said Canaccord analyst Simon Davies.

“GVC has the makings of an extraordinary turnaround story. bwin.party generated a 7.5% compound annual revenue decline in the period 2010 to 2015, but it has now reported three consecutive quarters of strong growth.”

Davies added that GVC has been the “star performer” in the online gaming sector, with shares up 67% since the start of December and 34% year-to-date.

“The shares trade on a 2017 enterprise value/earnings before interest, tax, depreciation and amortisation of just 8.1x, a free cash flow yield of 8.1% and price-earnings ratio of 10.9x.”

However, he warned that GVC is approaching a period of integration risk, with the transition of GVC sportsbook customers over to the bwin platform in the next few months.

Canaccord expects gross win margins to normalise in the second half and said third quarter wagering activity could be affected by the “customer unfriendly results” from the Euros.

Berenberg has reiterated its ‘buy’ rating on ASOS and raised its target price to 5,100p from 4,100p after the fashion retailer reported better-than-expected third quarter revenues.

ASOS on Tuesday reported a 30% rise in total sales for the four months to 30 June and said it expects full-year sales growth to be at the upper end of the 20-25% range.

Total retail sales grew to £500.5m from £386m in 2015, beating analysts’ expectations of around 23% growth.

Sales in the UK were up 28%, while sales in the US rose 53% and EU sales advanced 32%.

In the rest of the world, sales were up 16%, while international retail sales grew 31%.

Berenberg said ASOS significantly outperformed consensus revenue expectations despite challenging conditions across the sector.

“On an underlying basis, management guidance cautiously implies a slowdown in the fourth quarter of 2016 and fiscal year (FY)2017, although to date its UK and EU performance has not been negatively affected by Brexit-related uncertainty plaguing many of its retail peers,” Berenberg said in a note to investors.

“We continue to believe ASOS is a long-term structural winner and increase our earnings per share forecasts by 8%/5%/-3% in FY 2016/FY 2017/FY 2018 respectively to reflect accelerated top-line growth.”