Broker tips: Victrex, Virgin Money, AG Barr, Accesso

Analysts at Credit Suisse retained their 'buy' recommendation for shares of Victrex on Wednesday, telling clients that it estimates the plastics manufacturers' technology pipeline could deliver high single-digit top-line growth to 2025 and forecast a 5% FCF and total dividend yield.

In the same research note, the broker revised its target price up to 2,650.00p from its prior estimate of 2530.72p, explaining that it was expecting 7-8% volume growth per annum in 2018 and 2019, powered by 3-4% above market penetration from transport, electronics and oil and gas.

Credit Suisse went on to highlight Victrex's achieving its first orders in automotive gears and that company partner Magma had qualified to supply a 2.5km flowline into Tullow Oil, commenting that these steps show "proof of concept in potentially very large markets".

Successful execution on Victrex's pipeline should lead to the business growing approximately 10% per annum on a 10-year view, the broker said.

Victrex's dividends per share were seen as dropping 10% to 109.24p for 2018 and 2019, but afterwards improving to 113.39 in 2020.

Reflecting the overall positivity of the note, Credit Suisse said: "Q1 results highlighted a robust start to the year and promising ramp of the growth pipeline."

Virgin Money took a hit on Wednesday as RBC Capital Markets downgraded the challenger bank to 'underperform' from 'outperform', slashing the price target to 250p from 350p as it took a look at UK banks.

RBC said UK banks have benefited from cheap liquidity in the form of the funding for lending scheme and the term funding scheme since 2012. The last FLS drawdown was end of January and the last TFS drawdown will be at the end of this month. From then, liquidity will slowly be withdrawn in 2018/19 through FLS repayments and decline significantly when TFS maturities start in 2020.

It pointed out that Virgin has one of the highest usages of TFS and FLS funding of all the UK banks, at 18%. As these liquidity schemes end, growth and margin will become more challenging for VM, particularly as only 98% of its deposits are term deposits and savings accounts. RBC also noted that VM has a high loan to deposit ratio.

"Given liquidity is less freely available in the UK from February, we expect that loan growth will likely be curtailed to maintain an LTD ratio lower than 120%," said RBC, adding that 1% lower loan growth reduces its pre-tax profit estimate for 2018 by 2.3%.

RBC said it fully supports the strategy of building the digital bank and entering the SME market, which should significantly enhance returns in the long term, but argued that near-term potential consensus downgrades are more likely to impact in 2018.

AG Barr shares fizzed lower on Wednesday as JPMorgan Cazenove cut its stance on the Irn Bru maker to 'underweight' from 'neutral' and chopped the price target to 570p from 630p amid concerns about growing competition.

The bank said it expects the UK soft drinks market to come under pressure following the introduction of the sugar levy in April. It expects carbonates volumes to fall by 1% as consumers switch to healthier and low sugar drinks, and for competition to intensify.

JPM said that while AG Barr should be "sugar tax immune", the reformulation of Irn Bru - which accounts for 42% of sales - puts it at risk of losing customers. Earlier this year, some Irn Bru fans were up in arms after the company launched its new lower-sugar version of the drink, with many going so far as stockpiling their favourite fizzy drink ahead of the recipe change.

"AG Barr has reformulated its portfolio and is currently 99% immune from the sugar levy; however with competition increasing, we believe it is too small of a player and could face structurally lower margins as it invests more in pricing and innovation to support its current market position.

"We believe the rapid reformulation of Irn Bru may risk losing some customers and see circa 10% of revenues at risk of rationalization from the retailers."

The bank added that AG Barr's premium valuation is at risk. It currently trades at CY18E EV/EBITDA of 14.5x, which is a 56% premium to other European soft drink players.

Analysts at Berenberg initiated coverage on leisure industry group Accesso Technology with a 'buy' rating on Wednesday, citing several factors that they believed would lead to "double-digit organic revenue growth" over the coming years as their reasoning.

Berenberg stated that Accesso and its end-to-end technology stack, married with its global footprint, position it well in "a market that is fragmented by product, geography and vertical".

"We believe this will allow Accesso to take market share in its core theme park market, but also expand in the broader leisure industry where it has less penetration," the Tuesday morning research note read.

Berenberg initiated coverage with a 'buy' rating and a 2,700p price target.

Berenberg said, "Accesso has spent c$170m on five acquisitions since 2012. With more than $120m of balance sheet firepower over 2018-20E, we believe that accesso will likely use M&A to accelerate growth in new verticals and geographies. Our analysis indicates that M&A could deliver 30%+ earnings upgrades over 2018-20E and add up to 1,100p to our base-case DCF price target."

"We value accesso on a 80/20 blend of our base-case DCF and blue-sky valuation. Accesso trades on 37x 2018 P/E for a 20% 2018-20E EPS CAGR," the analysts concluded.