Broker tips: Mitchells & Butlers, Stobart, Ideagen

Mitchells & Butlers shares are "cheap as chips", Berenberg said on Thursday as it bumped up its stance on the stock to buy' from 'hold' and lifted the price target to 360p from 265p.

Berenberg said that M&B still has its challenges. "However, trading momentum is improving materially, a free cash flow yield of around 15% is within touching distance, and we simply think that is too cheap for a company with significant freehold backing (it owns circa 80% of its real estate) and a balance sheet which has been significantly de-risked."

It pointed out that after at least five years of sub-par sales growth and flat earnings, the company's like-for-like sales momentum has shown consistent improvement in recent quarters, culminating in 4.1% LFL growth in the first half of 2019 and 5% EBITDA growth.

Berenberg said this is indicative of building momentum behind management’s wide-ranging operational improvement initiatives, and the growing benefit of restaurant supply finally normalising. "We think both of those tailwinds can continue," it said.

Analysts at Jefferies initiated coverage on Southend Airport owner Stobart at 'buy' on Thursday, saying that progress on several fronts might drive the shares higher.

"Stripping the weeds is under way to reveal two valuable, growing assets," they said in a research report sent to clients.

According to the broker, Southend Airport was the only one of London's six airports with spare peak daily capacity and was on track to meet its 2023 goal of reaching 5.0m passengers, up from 1.5m currently and with Ryan and Loganair set to add another million beginning this summer.

Jefferies also noted that Connect Airways, a product of the Virgin and Stobart-Flybe deal, earlier trains and expanded retail and parking and a second hotel at the site all supported progress towards pushing EBITDA above £40m EBITDA in 2023.

Elsewhere, Jefferies noted that Stobart, which was also the leading supplier of waste wood biomass to UK renewable energy plants, had seen delays to commercial handover at the six largest plants which it supplies, but they now looked set to come to an end, with two completed and three more expected by July, helping the firm remove some of the remaining weeds.

"Both aviation and energy have 'below-the-line' negatives," said Jefferies, adding that it "should begin to decline this year".

"While proof of progress to passenger and tonnage targets is delivered. Remaining real estate can gradually be monetised (not yet assumed in our estimates) adding confidence over funding and dividend sustainability."

Jefferies, which started the group off with a 174p target price, also highlighted multiple potential additions to its target price in its aviation (42p), energy (22p), corporate (39p) and other units (25p) and if shareholder overhang issues were resolved and progress confirmed then the upside valuation could rise to 285p and beyond.

Analysts at Canaccord Genuity raised their target price for British software firm Ideagen from 160p to 170p on Thursday, citing the group's "confident" growth outlook and an "attractive" valuation as their reasoning.

Canaccord said Ideagen's capital markets day had highlighted the "attractiveness" of the risk and audit management software market, evidenced by high confidence in continued organic growth of more than 8% per annum with scope for acceleration to low-teens from 2020.

The Canadian broker, which also reiterated its 'buy' rating on Ideagen, expects recurring revenues to surpass 70% in 2019, noting that they could even approach 80% by 2022, increasing the defensiveness of its shares.

And the company's attractive earnings profile should be enriched by tuck-in M&A, where the firm's chief executive Ben Dorks and chairman David Hornsby had "a strong integration track record".

"In the current uncertain macro times, the relative value of a reliable growth compounder such as Ideagen should go up, particularly as we see that most peers exhibiting similar growth and recurring revenue characteristics trade on 25+% higher multiples," said Canaccord.

"We lift our target to 170p reflecting higher conviction in growth delivery, re-rated peers and rolling forward our DCF. Our target implies 20% upside but we highlight ~80% potential assuming management delivers on its '£100m revenues and £30m EBITDA' target for FY22."