Broker tips: Pendragon, Whitbread

Analysts at Berenberg resumed coverage on used car dealers Pendragon at 'buy' on Friday after suspending its coverage on the stock back in September, stating the firm was now "back to business".

When Berenberg pulled coverage of the stock in September, Pendragon announced that it had received a proposal from its largest shareholder, Hedin Group, regarding a possible offer for the company for 29.0p per share. However, Hedin withdrew its offer on 9 December, citing the "challenging market conditions and uncertain economic outlook".

The German bank, which issued the group with a 35.0p target price, also highlighted that Hedin Group was not the only party to have shown interest in Pendragon at levels well above the current share price of 19.0p, with US-listed outfit Lithia Motors also presenting an offer for the group at 29.0p per share.

Berenberg admitted that there were "a number of factors" that will likely impact Pendragon moving into 2023, with recent interest rate rises set to weigh on the group given that its vehicle stocking lines, as well as some of its borrowings, were accessed at variable rates. Berenberg also said considerations were present in respect of wage inflation, although it noted there should be some support from a recovery in new car volumes.

Analysts at Jefferies raised their target price on hotel operator Whitbread from £30 per share to £35 following what it called "a premier quarter".

"Whitbread's strong Q3, current trading and opex inflation have driven market sentiment today. We expect consensus to move up circa 10% to Jefferies estimates in FY23 (group adjusted pre-tax profits £388.0m). We keep our recession scenario for FY24E unchanged," said the bank.

Jefferies said with strong near-term momentum now priced in, it was now time for the next leg of Whitbread's equity story - driven by M&A potential and German profit inflection.

"Whitbread trades on 11.8x 23 EV/EBITDA vs history 10.2x, with re-rating potential from defensive demand characteristics, superior yield management vs history, beneficial supply conditions and £750.0m of cash firepower," said the analysts.

Reporting by Iain Gilbert at Sharecast.com