Broker tips: Polypipe, Ashmore, Jet2, Moneysupermarket

Analysts at Berenberg raised their target price on plastics pipe company Polypipe from 540.0p to 610.0p on Monday, stating recent acquisitions aided the company's structural growth story.

Berenberg noted that over the past two weeks, Polypipe has announced two acquisitions that both offered "strong" strategic fits, "high" growth potential and improved the group's "compelling" mid-term structural growth story.

To reflect the ADEY and Nu-Heat acquisitions, as well as the company's recent placing, the analysts reassessed their target price, with the group now trading at a 22x price-earnings ratio.

However, the German bank added that it remains "cautious" about whether shares can outperform the sector and highlighted better risk/reward scenarios elsewhere, leading it to reiterate its 'hold' rating on the stock.

Shore Capital downgraded Ashmore to 'sell' from 'hold' on Monday on valuation grounds as it cut its forecasts.

The broker said: "Having thought that Ashmore’s valuation was looking stretched (at 450p) at the time of January’s Q2 AuM update (which reported a fourth consecutive quarter of net outflows), we now find ourselves downgrading forecasts, mainly on a sharper than expected contraction in the blended management fee yield."

However, Shore noted the shares have continued to move upwards and, at a Jun '22 price-to-earnings ratio of 18.5x, it reckons the company’s deserved sector premium has now "gone too far".

"With our Jun '21 numbers flattered by large seed gains and an unusually high performance fee, we now use Jun ’22 as the base year for our valuation," it said. Shore cut its earnings per share estimate for that year by 2% on multiple negative mix impacts on the revenue yield but lifted its fair value from 405.0p to 415.0p.

"With the risk of inflation shocks arguably higher than for many years, which are never good news for bonds, we think the risk/reward in the current share price is unfavourable and the safe dividend yield (on a likely flat payment) of 3.6% no longer offers valuation support."

Analysts at Canaccord Genuity have kept their rating and target price for low-cost leisure airline Jet2 under review following the group's successful equity placing.

Canaccord said on Monday that proceeds from Jet2's £422.0m equity raise should allow the company to navigate the "highly challenging market environment" and also allow management to continue to take longer-term strategic decisions to support long-term profit growth.

"It will likely also allow the group to emerge from the pandemic in a stable commercial position to capitalise on the upturn opportunities when they arrive," highlighted the analysts.

Additionally, the Canadian bank noted that Jet2's proven operating model and strong track record, excellent brands and customer loyalty, would also likely allow it to "prosper" going forward and drive shareholder value.

"Our forecasts, PT and recommendation remain under review until there is greater clarity in terms of the impact and duration of the Covid-19 pandemic," concluded Canaccord.

Tougher regulation of home and motor insurance and stiffer competition will drag on Moneysupermarket's earnings, Liberum said as it cut the company's rating to 'hold'.

The Financial Conduct Authority has banned insurers' practice of charging existing customers a "loyalty penalty" and this will mean less switching, Liberum said. Moneysupermarket's rival Go Compare also has a bigger potential customer base after it was bought by Future, the broker added.

Continuing restrictions on travel, tighter credit and higher wholesale energy prices will also limit growth for core switching revenue, Liberum said. Three days before the company's annual results, analyst Harry Read cut his rating on Moneysupermarket shares from 'buy' and reduced his price target to 290p from 335p.

"We believe our 20x FY21 price-to-earnings valuation and 290.0p target price indicates fair risk/reward payoff given the medium-term difficulties for MONY," Read said in a note to clients.