Broker tips: JD Wetherspoon, IAG, Barratt Developments, Softcat

Liberum has upped its price target on JD Wetherspoon but warned that it remains cautious about the scale and pace of the pub chain’s recovery.

The broker has increased its price target on the stock to 1,400.0p from 1,150.0p. But analyst Anna Barnfather maintained the rating at 'hold', despite half of Wetherspoon’s pubs due to reopen from next month.

She said: "JD Wetherspoon plans to reopen its pubs starting in April, when we expect a gradual recovery with sufficient liquidity to step up investment activity in due course.

"However, we remain concerned over its high volume of sales/vertical drinking and are less sure of its ability to push prices significantly, which sit he crux of the bull case." Vertical drinking refers to drinking while standing at the bar."

Barnfather noted that Wetherspoon's expects to open around 450 of its 872 pubs with outdoor areas on 12 April. However, it also anticipates the firm's initial recovery will see further pressure on its high volume and low margin model, with recovery accelerating in the 2022 full year as all trading restrictions ease.

Deutsche Bank has downgraded International Airlines Group to ‘hold’ from ‘buy’ after a recent rally in the share price.

The bank said the owner of British Airways had risen 27% since December 2020, fuelled by the successful vaccine roll out in the UK and US and growing hopes that international travel will return this year.

As a result, the stock – which closed on Friday at 215.8p – is now close to Deutsche Bank’s price target of 220.0p.

The bank said: "History suggests that early in a cycle, a network airline with IAG can trade on elevated multiples and we note the 12x P/E and 6.5x enterprise value/earnings before interest, tax, depreciation and amortisation that that it traded on between 2013 and 2015 on average.

"However, on our 2023 forecasts and assuming a required return of 15% pa, the shares are already there. Were we to look to 2024/25 instead, we could highlight 30% potential further upside – however, we don’t think the timing is right for this to be realised, with positive re-opening news already in the price, and some downside risk to consensus forecasts near-term."

Deutsche Bank noted that long-haul leisure was a "key profit driver for the group" and while it said it had no doubt that recovery would come for the segment, the timing remains "hard to predict".

Analysts at Berenberg raised their target price on construction firm Barratt Developments from 740.0p to 800.0p on Monday, stating the housebuilding sector had enjoyed a strong start to the year.

Berenberg stated the sector's solid start to the year had been spurred on by "continued favourable market data" and "supportive government action", with its forecasts for the group now ahead of consensus for 2021.

However, the German bank stated that as Barratt was now trading at roughly 1.5x full-year 2021 book value per share, it thinks that the market is anticipating a "strong performance" and as a result, the shares look "fairly valued".

Berenberg, which stood by its 'hold' rating on the stock, highlighted that completions were expected to recover to 2019 levels by 2022, with Barratt completing a total of 8,699 homes in the first half, at an average selling price of £283,000, generating total revenues of £2.5bn.

The analysts also stated that the group's balance sheet was strong and should support land investment or capital return, while their higher-margin expectations for Barratt should result in a return on equity of roughly 13%, compared to a five-year, pre-Covid average of about 15%.

Citi upgraded its stance on shares of IT infrastructure and services provider Softcat on Monday to ‘neutral’ from ‘sell’ as it said the premium valuation is here to stay.

The bank said its 'sell' thesis on Softcat assumed the company would be unable to maintain its valuation premium against peers through the pandemic.

"But given the strong trading conditions of the last twelve months driven in part by the shift to remote working, we now believe that this premium will persist and upgrade the stock to neutral," it said.