Broker tips: Taylor Wimpey, Redrow, Diageo, Travis Perkins

JPMorgan Cazenove downgraded Taylor Wimpey and Redrow on Wednesday as it took a look at housebuilders.

"While it is tempting to turn optimistic on the UK Housebuilding sector following the recent moderation in interest rate expectations, we remain cautious with activity levels going through a seasonal lull over the next few months and relatively elevated valuations in the mid-cap space," JPM said. "We revise our estimates, which now stand 7% below consensus for 2023-25."

JPM downgraded Redrow to 'underweight' from 'neutral' and cut its price target on the stock to 390.0p from 550.0p as it sees the stock's valuation being vulnerable as soon as the buyback program completes.

Meanwhile, Taylor Wimpey was cut to 'neutral' from 'overweight' and its price target was reduced to 110.0p from 170.0p.

Analysts at Deutsche Bank lowered their target price on drinks maker Diageo from 3,350.0p to 3,160.0p on Wednesday as they adjusted their numbers on the stock ahead of its first-half results on 26 January.

Deutsche Bank expects to see Diageo deliver organic sales growth of 5.3%, organic operating profit growth of 4.0%, reported sales of £9.07bn, reported underlying earnings of £3.14bn, and earnings per share of 97.2p.

The German bank highlighted that having not given guidance at the time of its full-year results, it does not expect explicit 2023 guidance to be given along with the interim results.

However, DB expects the company to reiterate its medium-term guidance of 5-7% organic sales growth and operating profit growth of 6-9% for 2023-25.

Deutsche Bank, which reiterated its 'sell' rating on the stock, added that commentary around consumer demand, particularly downtrading, and cost pressures will likely be the "key" components of Diageo's interims.

Liberum downgraded Travis Perkins to ‘hold’ from ‘buy’ on Wednesday, as it took "a more selective stance".

In a broader note on building materials and equipment hire, the broker said it sees outperformance more likely in shares of companies with clearer growth records or differentiators.

"We expect the housing market to soften on raised mortgage rates and lower confidence, but Travis has a good track record of cutting overheads if demand falls and it can reduce inventories and rein in capex to protect further its strong balance sheet," it said. "The shares look cheap, especially on a sum of the parts basis, but renewed performance will need rate expectations and inflation to peak."

Liberum said it sees little upside to its unchanged and conservative target price of 960.0p but noted that while TP's Toolstation wing was unprofitable after European losses, it noted the offering was fast growing and comes with a very strong franchise.

"We use a sum of the parts analysis, putting a relatively low multiple (8x) on Merchanting and valuing Toolstation using a discounted cash flow (less a 30% discount)," it said.