Broker tips: Moneysupermarket, ASOS, Morrison
Moneysupermarket.com Group shares gained on Friday as RBC Capital Markets initiated the stock at an ‘outperform’ rating with a price target of 400p.
“Moneysupermarket offers the only pure way to get exposure to the structural growth opportunity in price-comparison websites,” RBC said.
“Based on what we believe are realistic assumptions, the market provides 75% revenue upside to 2021. A differentiated product offering with exposure to faster-growing verticals helps the company to stand out backed by earnings growth compound annual growth rate (CAGR) of 16% 2016-2021E.”
RBC also expects the price comparison website to deliver revenue CAGR of 10.4% in 2016 to 2021.
The broker said the group has a more diversified product offering compared to peers that are part of listed motor insurers. This should encourage site traffic in a traditionally competitive market, RBC said.
“The company generates more of its revenue from money products (24% versus 6% at Gocompare) and is the second-largest player in the Energy market. As a result, the company has a strong foothold in two of the market verticals that we expect to show fastest growth.”
RBC believes Moneysupermarket’s business model is highly cash generative and forecasts a free cash flow yield of 5.4% in 2017. The company offers a 2016 yield of 3.3% versus internet-focused peers with an average of 1.3% average.
“Despite this attraction, Moneysupermarket continues to trade at a discount to UK online aggregators on 22.0x 2016E earnings versus peers on 33.0x. We believe that year-to-date underperformance on concerns around the competitive environment and Brexit provides a decent entry opportunity.”
JPMorgan Cazenove bumped up its price target for online retailer ASOS to 5,400p from 4,550p, keeping the stock at ‘overweight’.
“As a fashion-forward pure-play with strength in own-brand, we believe ASOS is a natural winner from US trends,” the bank said.
It expects the company to shortly announce a new, larger US warehouse which it said could support a scale delivery proposition that is faster and more convenient for US customers.
In addition, it will allow ASOS to start sourcing US brands from local distributors, which will lead to lower cost prices.
“This should fund incremental price investment as well as mean that ASOS can offer key local brands to the US consumer (e.g. Nike) that are not economically viable in this market at present.
“Key brands, lower prices and enhanced delivery should boost US growth.”
Exane BNP Paribas upgraded Wm Morrison to ‘neutral’ from ‘underperform’ and lifted the target price to 200p from 165p following the supermarket retailer’s first-half results on Thursday.
“We have a positive stance on the UK food retailers but thought that Morrisons would need to reinvest nearly its entire cost savings. We are no longer convinced that’s the case,” said the bank.
It said Morrisons is a business burdened by paperwork, which damages the shopping experience and adds costs and complexity. However, Exane reckons the relatively new management team can continue to lift the burden, improve the retail, stay sharp on price and deliver some margin accretion.
It said Morrisons appears to be doing a good job of tackling non-productive costs, having saved £189m of costs in the first half, with earnings before interest and taxes up £20m.
It pointed out that cost headwinds (mainly employee wages) were £50m so the group invested about £120m in lower prices and the proposition in the first half.
“The cost savings and reinvestment are substantial but the plan is working; Morrisons sales momentum is better than we expected (Q2 LFL at 2% with transaction growth up 4.3%) and the improvement is looking increasingly sustainable.”
“With the ship steadier, Morrisons can now tackle big projects like sales-based re-ordering, previously put on ice due to the risk of disruption. Projects like that should free up time in store and, perhaps more importantly, improve availability and shelf/fridge life in turn helping sustain the retail recovery.”