Broker tips: Vaalco, Virgin Money, EasyJet

Analysts at Canaccord Genuity upped their target price on exploration and production firm Vaalco from 155p to 210p on Wednesday following the group's "transformational transaction".

Canaccord said it had chosen to up its target price on Vaalco after its recent acquisition of another 27.8% working interest in the Etame Marin Licence offshore Gabon from Sasol for $44m looked set to almost double total group production to 9,300 barrels of oil per day net revenue interest and increase 2P reserves to 17.5m barrels.

"We think this transaction makes very good sense from multiple angles," said Canaccord.

The Canadian bank stated the combination of greater company size, the geared impact on free cash flow generation, reduced breakeven pricing, increased upside potential from both Etame Marin and DE-8, and Vaalco's "deep understanding" of Etame Marin and Gabon were all positives.

Furthermore, Canaccord now expects Vaalco to be able to complete the transaction entirely from cash, with a net cash payment at completion of $36m after adjustments, compared with net unrestricted cash at the end of 2020 of $44m and no debt.

Barclays upgraded its stance on shares of Virgin Money on Wednesday to ‘overweight’ from ‘underweight’ and hiked the price target to 165p from 100p.

The bank said it reckons Virgin Money is best placed to enjoy a mortgage tailwind, which it sees as sustainable from 2021, alongside asset quality better than many peers.

"We see long-term value from strong pre-provision operating profit recovery, with Virgin Money on course for double-digit returns beyond 2022," Barclays said.

"Despite the recent share price rally, we think valuation is attractive at 6.1x 2022e earnings (versus sector at 8.6x) or 0.6x TNAV for a 9.7% return on tangible equity."

Berenberg downgraded easyJet to ‘hold’ from ‘buy’ on Wednesday, arguing that upside is more limited because the shares have rebounded more than 40% since 9 November.

However, the bank lifted its price target to 820p from 730p to reflect better outer-year estimates.

"Vaccine progress represents an unequivocal win for any airline. However, wider anticipation for demand momentum suggests there is more scope for disappointment from easyJet as it continues to burn cash," it said.

"Management unsurprisingly noted that bookings have accelerated in the last two weeks. These inflows will prove critical in stemming the company’s cash burn.

"This is likely only possible post-Christmas (into Q2), in our view, even though headwinds from vouchers are modest at £250m. We expect continued negative free cash flow through 2023, even after the company lowered the top-end of its capex assumptions."

Berenberg also said the case is building for equity issuance after the airline noted that it doesn’t expect further large sale-leaseback deals.