Broker tips: JD Sports, Avacta, Liontrust Asset Management, Auction Technology Group

Shares in JD Sports Fashion tumbled on Thursday after a profit warning from the sportswear retailer, but it wasn't enough to change Shore Capital's 'buy' rating on the stock, with the broker citing an undemanding valuation.

JD Sports warned full-year profits would be at the lower end of forecasts after a “volatile” trading environment in October due to discounting, milder weather and consumer caution ahead of the US election.

"JD’s equity has been weak going into this update and we are, frankly, relieved that the FY25 profit before tax remains within range," the broker said.

Shore Capital highlighted that JD has shown a "disciplined margin performance" despite the weaker-than-expected trading, with gross margins 0.3% better year-on-year at 48.1%.

"JD has remained disciplined in its approach to the market, resisting the urge to follow others into more promotional (and margin eroding) behaviour," the broker said.

The stock trades at a price-to-earnings ratio of around 7x and an enterprise value-to-EBITDA rating of under 5, which "suggests value to us", according to Shore Capital.

Peel Hunt initiated coverage on Avacta on Thursday with a ‘buy’ rating and 99p price target as it pointed out three key aspects of the investment case.

Firstly, it argued that Avacta’s pre|CISION and Affimer technology platforms have the ability to create the next generation chemotherapies.

It said they create drug conjugates, which reduce the current side effects of current cancer treatments, meaning the current therapies could replace them in the standard-of-care pathway.

Secondly, it said that clinical data from the lead asset AVA6000 looks very promising. Peel Hunt said it’s currently in a phase I trial and has been able to reduce side effects such a cardiac and bone marrow toxicity in comparison to doxorubicin, which is the standard-of-care chemotherapy.

"We forecast that AVA6000 should reach commercialisation in FY28E, and use the revenue streams FOR AVA6000 in soft tissue sarcoma and salivary gland cancer indications initially, with breast cancer sales beginning in 2030E, to reach our risk-adjusted NPV valuation for the therapeutics division," it said.

Lastly, Peel Hunt said that as Avacta moves to become a pureplay oncology biotech, it expects the company to divest its diagnostics division and models a base case expectation of a 0.75x revenue multiple, valuing the diagnostics business at around £20m, but can see a bull case valuation of around 54m.

Analysts at Berenberg lowered their target price on Liontrust Asset Management from 625.0p to 500.0p on Thursday but said the group was still "well positioned for when markets turn".

Liontrust's H125 results revealed assets under management and advice had declined during the period and into the start of H2. However, it also said that it intends to maintain its dividend at the same level as last year and launched a £5.0m buyback programme.

In addition to the target price reduction, the German bank opted to maintain its 'hold' rating on the stock as a result of "continued uncertainty" about the flow environment.

"While it is challenging to predict when the active flow environment will become more positive, we view Liontrust as well positioned to benefit from a tailwind once favourable investor sentiment returns to the UK equity market," said Berenberg.

"We update our forecasts, with our FY25 EPS figure decreasing by circa 3%. This is primarily driven by a decrease in our flow forecasts for FY25 (from -£3.0bn to -£3.6bn) and a decrease in our revenue margin assumption from circa 61 basis points to circa 60 basis points. This is partially offset by lower operating costs."

Jefferies has kicked off coverage of Auction Technology Group with an 'underperform' rating, saying it sees continued downward pressure on consensus forecasts.

The broker has given the stock a target price of just 380p, compared with Wednesday's closing price of 445p.

Jefferies said that total hammer value declines have continued to accelerate in the second half ended 30 September, worsening across both the Arts and Antiques division and Industrial and Commercial.

Meanwhile, the broker said that "unfavourable characteristics" of the I&C market suggest that the company will struggle to expand take rates (marketplace revenue as a percentage of total auction sales values) in line with others in the sector.

"We expect negative THV trends to become more visible on 28 Nov (FY24 results) and FY25 guidance to come in lower than expected. A lack of progress on marketing, payments and shipping should become increasingly apparent over the next 12 months, as progress fails to meet expectations," Jefferies said.