Broker tips: Thomas Cook, Experian, Grainger

Liking the look of Thomas Cook's first-half results and the potential for a good summer, Bernstein upped its rating on travel group on Friday.

With Thomas Cook revenues growing more than 5%, narrowing its first-half EBIT loss as it continued to fine-tune its strategy, Bernstein saw benefits from industry tailwinds such the fall of Monarch and Air Berlin and the return of growth in North Africa and Turkey.

However, as there is still expected to be margin pressure in the UK through the second half Bernstein only upgraded to 'market-perform' from 'underperform', believing management "could be being cautious given the rapid return of growth in higher margin Turkey/North Africa, and the shorter-term benefits in the airline"

"Summer 2018 should be good for Thomas Cook," the broker said.

While analysts noted that Thomas Cook's differentiated focus appeared to be working, with the outsourcing of its more standardised operations to partners, such as Expedia, driving a "more reliable fee profit stream", a better customer proposition, and an allowance for "even more focus" on the differentiated product, the broker remained a little cautious ahead of the second half.

Thomas Cook would need currently seen elevated levels of demand for its package holidays to remain in place in order to continue growing at a rate which the market expects, the analysts said, revising the target price to 127p.

With Experian's latest set of full-year results showing organic growth accelerate to 8% in the fourth quarter, Goldman Sachs upped its target price on the credit reporting agency as it expects "growth momentum to continue".

Experian's organic growth came in well ahead of the broker's expectations and its benchmark full-year earnings before interest, tax, debt and amortisation was in line with the company-compiled consensus, leading to Goldman to lift estimates on the credit checker's 2019 organic growth estimates ahead to 7.3% from the previous 6.5% mark.

Experian had said it was expecting "another year of strong performance, with EBIT growth at or above revenue growth", signalling potential margin expansion in the year ahead.

In its North America Consumer Services wing, Experian reported a "small positive growth", which offset a double-digit decline in the UK and its UK and Ireland Decision Analytics and Marketing Services "performed strongly", leading the B2B segments growth of 9% and coming in ahead of the broker's overall expectations.

Experian also announced a further $400m buyback programme, equivalent to roughly 2% of its current market cap, while increasing its interim dividend by 10%.

Goldman Sachs said, "We see the 8% organic growth as a strong print and expect the growth momentum to continue into FY19, with positive operating leverage leading to moderate margin expansion."

Analysts believe the strong growth and margin expansion are "not fully priced in" and reiterated their 'buy' rating, with a 12-month price target of 1,950p up from 1,920p.

Grainger was in the red on Friday as Barclays downgraded the stock to 'equal weight' from 'overweight' following recent share price strength.

It said that although the company posted solid interim results on Thursday, this is now reflected in the share price following the strong performance that has seen it gain more than 11% year-to-date, outperforming the broadly flat FTSE EPRA UK benchmark materially and reaching the bank's unchanged 320p price target.

Barclays said that other than the group progressing on its £850m acquisition target by 2020, there are limited catalysts on the horizon at the moment.

"The last bit of the refinancing has successfully been executed, while we do not expect any accelerating rent growth from here (we expect 3.25% per annum) and future valuation gains to be modest.

"The company upped its acquisition capacity to £1.2bn, yet this was mainly driven by £250m worth of further asset recycling of existing mature assets, thereby reducing the net impact," it said.

Grainger posted a 9% jump in its net rental income to £21.8m in its half-year results, along with a £756m secured private rented sector investment pipeline, up from £439m year-on-year.

The FTSE 250 residential property landlord said it saw 4.1% like-for-like rental growth across its entire portfolio, with adjusted earnings rising 20% to £40.9m.