Broker tips: On the Beach, RyanAir, Beazley

Citi downgraded its stance on shares of package holiday provider On The Beach on Tuesday to 'neutral' from 'buy' following the 29% share price rise a day earlier on the back of positive news about Pfizer and BioNTech's Covid-19 vaccine.

The jump meant the share price exceeded Citi's previous target price of 340p, which has now been boosted to 370.0p.

"We believe it is fairly valued here, at long-term average online travel agency multiples on our FY22E estimates," the bank said.

Citi said recent vaccine news gives it confidence in assuming FY22E demand normalisation.

"However we expect FY21E to be a transition year, with winter trading currently challenged, potential vaccine rollout through the year and uncertainty around population uptake and immunity longevity," it said.

The bank also said it now assumes FY21 net revenue of 65% of the 2019 level.

News of Pfizer and BioNTech's Covid-19 vaccine candidate's greater than 90% efficacy was also said to be positive for airlines.

Morgan Stanley analysts said they saw the best risk-reward in RyanAir, labelling it the "high quality" name in the space.

They also pointed out that the latest news from Pfizer and BioNTech should now lead to a "significant" improvement in demand for airlines over the fourth quarter of 2020 and the first quarter of 2021.

Hence, at their current average burn rates, IAG, Lufthansa and Easyjet might all still need to "access more liquidity resources" in 2021.

Elsewhere, Barclays initiated coverage of Beazley at 'overweight' on Tuesday with a 391.0p price target, arguing that it’s "a rare example of a growth play in insurance".

The bank said Beazley should benefit from both the cyclical upswing in the market created by price hardening and resilient organic demand in specialty segments such as cyber.

It expects the insurer to grow its top line by 25% in the next three years and improve its combined ratio to 91.5% in 2022.

"While $340.0m of Covid losses have nullified the $300.0m May equity raise and reduced the capital buffer, we believe the company could weather a further $300.0m of losses before needing to strengthen its capital," it said.

"In the meantime, the stock is trading at 10x price-to-earnings 2021E, 8x 2022E, well below the historical average of 15x over the past five years."