Broker tips: Sophos Group, IAG, Next, M&S

Numis sounded an optimistic note on Sophos Group ahead of the company's Capital Markets Day, pointing to the firm's strong products, a substantial market opportunity and the attractive cash flow yield on offer to back up its arguments.

Against that backdrop, it believed the IT security specialist's upcoming CMD on 29 June was a potential positive catalyst on the horizon.

The broker also called attention to recent mergers and acquisitions activity in the space (Symantec/Bluecoat, Fireeye), which in its opinion meant that trade buyers saw value in the company.

Recent deal activity also provided strong validation of Sophos’s integrated network/endpoint strategy, analysts David Toms and Will Wallis said in a research note sent to clients.

Analysts at Credit Suisse slashed their target prices for Marks&Spencer and Next stock on the back of expectations for lowering economic growth in the UK and weakness in sterling.

The Swiss broker said that following the referendum result it now expected British GDP to shrink by 1.0% in 2017 while its economists expected cable would fall as far as 1.20.

It pointed out the recent experience of Swedish retailer H&M, whose trading was buffeted by weaker demand together and a circa 20% adverse move in euro/dollar, which combined drove a greater than 350 basis point drop in margins at its European business.

Analysts Pradeep Pratti and Simon Irwin cut their target price on M&S from 370p to 340p and on Next from 5,200p to 4,950p.

Analysts at RBC downgraded their recommendation on shares of IAG, saying the company now faced economic and stranded capital risk.

Regulatory issues aside, the broker now saw potential for economic uncertainty and hence reduced travel demand.

Similarly, should the UK’s economic role decline, then ‘premium’ travel demand would also take a hit, its analysts said.

“Airlines live and die by the economic outlook and for IAG, with 67% of ASKs in the UK and Ireland, will face added uncertainty following the UK’s referendum result,” analysts Damian Brewer and Andy Jones said in a research note sent to clients.