Broker tips: Persimmon, Jimmy Choo, ASOS

Housebuilder Persimmon and its peers got a boost on Friday as Liberum upgraded the stock to ‘buy’ from ‘hold’ and lifted price targets across the sector as it took a more positive view.

“We have upgraded estimates across our coverage as 2016 trading is much better than we feared in our immediate post-referendum downgrades. We still expect a dip in earnings in 2017 and 2018, but we have moderated our volume decline expectations.

“The sector's shares are up 34% since post-EU referendum lows, but we still see selective value in the sector, adding Persimmon to the Buy list, joining Bellway, Berkeley and Gleeson.”

Liberum said the housing market has been surprisingly resilient since the EU referendum as consumer confidence has held up well, mortgage availability has remained good and mortgage rates have fallen.

It upgraded its recommendation on Persimmon as it pays more attention to the high dividend at low risk.

The brokerage said it was confident Persimmon will achieve the payments pledged because of management's incentive scheme, but also because its long land bank means it could cut land spending dramatically to boost cash flows and the strategic land bank should protect margins too.

Liberum upped its price target on Persimmon to 2,100p from 1,795p. It kept Barratt Developments,Bovis, Redrow and Taylor Wimpey at ‘hold’ andBellway, Berkeley, and MJ Gleeson at ‘buy’.

Jimmy Choo got a boost on Friday as Bank of America Merrill Lynch upped the stock to ‘buy’ from ‘neutral’ and lifted the price target to 150p from 130p.

It pointed out that although the stock offers the highest estimated earnings growth in the luxury sector, it trades at a 30% discount to peers, having de-rated by 25% year-to-date due to an uncertain environment and low liquidity in the stock.

“We have greater confidence in the group’s LFL recovery in H2, as initiatives in the challenging US market are bearing fruit – confirmed by management at our Global Consumer Conference.

“Margin expansion should therefore accelerate in H2 placing it firmly back on track to reach its mid-term targets as the group unlocks its growth opportunities.”

The bank said the Jimmy Choo brand still has scope to increase its directly operated store network by at least 30% primarily driven by Asia and to penetrate men’s shoes.

It forecasts 120 basis points of earnings before interest and tax margin expansion over 2016-20E as the group benefits from increasing retail mix, scale and operating leverage.

BofA said there is 7% incremental upside to its 2020 earnings per share estimate if mid-term targets are reached by then.

Credit Suisse initiated coverage of ASOS at ‘neutral’ with a 5,100p price target as it took a look at the European online retail sector.

It said ASOS remains an attractive growth company 16 years after it was founded, with a distinctive business model and differentiated product offer, fashion credentials, strong engagement with its target 20-something demographic and global distribution. All of this positions the company to become a potential long-term winner in apparel retail, CS said.

It pointed to the company’s aspiration to become a £3bn+ business by 2021 and said that while the targets outlined at the capital market day are demanding, they are not unrealistic.

“ASOS is now more focused (post China exit), and is investing in fulfilment and IT infrastructure to support this medium-term growth. Relative to peers, long-term margin potential, however, remains less clear.

“The medium-term margin target was dropped and we also see limited scope for leverage in fulfilment costs over the next four years given the need to invest in additional warehouse capacity, delivery proposition, and the changing nature of logistics.”

Credit Suisse said that with the shares up about 80% since February versus the UK retail index down 7%, good news is now more than priced into the stock, which is trading at a premium to peers.