Broker tips: IWG, Direct Line, B&M, Marks & Spencer

Deutsche Bank adjusted its ratings on a number of retailers on Friday, as it noted that the European general retail sector ended 2022 on a "surprisingly good" note.

"Whilst 2023 is unlikely to be a great year for consumers, the outlook is getting noticeably less chilly in our view," it said.

The bank upgraded discounter B&M European Value Retail and Marks & Spencer to 'buy' from 'hold', while its price targets for the two were lifted to 580.0p from 460.0p and to 210.0p from 145.0p, respectively.

Deutsche downgraded B&Q owner Kingfisher, Pets at Home, Asos and Wickes to 'hold' from 'buy' and cut its Kingfisher price target to 260.0p from 275.0p, but lifted its price target on Pets at Home to 355.0p from 310.0p. The bank's target price for Asos was upped to 950.0p from 800.0p, while its target price for Wickes was increased to 160.0p from 150.0p.

"Operating cost inflation likely remains the biggest challenge facing the sector but with energy costs falling it is largely wage inflation that has to be managed," said DB.

"Given this backdrop, our thesis has evolved to prefer clothing retailers over hardlines, discount over mainstream and physical retail over online."

Analysts at Barclays downgraded insurance firm IWG to 'equal weight' on Friday.

Barclays stated nothing "material" has changed strategically, but said consensus seems optimistic on cash conversion in IWG's company-owned business and highlighted that it sees risk that the firm's city locations do not fully recover to pre-Covid profitability due to structural changes in the office rental market.

"We cannot yet gain conviction that the earlier-stage digital and capital-light businesses can be a sufficient offset, and we downgrade to EW with a 170p PT (-11%), implying 37x/20x FY23e/24e EV/NOPAT," said Barclays/

The bank also downgraded Direct Line Insurance to 'underweight', noting that it believes the group's recent CEO change, strongly restricted solvency capital and "stiff competition" in UK personal lines all increased the likelihood of a capital raise.

However, Barclays also noted that operating performance was likely to remain soft in 1H23.