Broker tips: Wizz Air, Kainos Group, AstraZeneca

Analysts at Berenberg lowered their target price on low-cost carrier Wizz Air from 3,300.0p to 3,200.0p on Friday, stating recent capacity rationalisation was aiding unit revenues for the summer.

Berenberg said Wizz Air's recent five percentage point cut in second-quarter capacity to 130% of 2019 levels, as well as the tempering of growth through winter, represented "a step in the right direction" from management.

"Where it seemed the restoration of asset utilisation was the sole priority earlier in the year, rather than route-level profitability, improved discipline is now being observed," said Berenberg.

The German bank, which reiterated its 'buy' rating on the stock, stated that slower growth was feeding into stronger pricing and said it should also accommodate the restoration of operational reliability.

"We model unit revenues for Q2 being circa 10% ahead of 2019 levels (as guided) but see upside to this if September remains in line with July and August (running at c11% above 2019). We increase EBIT estimates for FY23E slightly, driven mainly by stronger pricing, but take net income for the year down to account for more non-cash balance sheet revaluations," said the analysts.

Analysts at Canaccord Genuity reiterated their 'buy' rating and 1,350.0p target price on software firm Kainos Group on Friday, stating "good things" come to those who wait.

Canaccord Genuity said Kainos' announcement that it had received "Phase 1 Prime Partner" status from system software company Workday in the US, which it has been holding in Canada and most major European markets for some time.

The Canadian bank stated that in practice this meant that Kainos can now bid for and deliver initial implementations/rollouts for Workday software in the US market, whereas previously it was only allowed to bid for "Phase X" projects - such as upgrades or extensions after initial deployment.

Canaccord also noted that unlike the services ecosystem for most other large enterprise software vendors, the "club" of integrators was tightly managed and controlled by Workday limiting new entrants and hence competition - making this "a highly attractive market" to be a part of.

The analysts believe that gaining "Phase 1" status will likely act as a mid-to-long-term growth catalyst for Kainos' "fast-growing" US business.

"With Kainos now able to bid for Phase 1 deployments, this should be accretive to the growth opportunity," said Canaccord.

"Adding the handful of accredited Phase 1 partners, and we would size the US Workday Services TAM at around $1.5bn. As per our below 'back of the envelope' math, we estimate that every 1% US TAM capture could hence add ~£13m/3% to Kainos' sales and operating profits."

Analysts at ShoreCap reiterated their 'buy' recommendation for shares of pharma giant AstraZeneca on Friday, describing its second quarter top-line growth of 37% year-on-year at constant exchange rates "impressive".

AZN have delivered a strong second quarter, with Q2 benefitting from a full quarter of Alexion integration and several products beating consensus expectations," said the analysts.

"Oncology was in line overall due to strong commercial execution and lower Covid-19 related headwinds than anticipated," noted ShoreCap, which also called attention to the fact that AstraZeneca was reinvesting its strong revenues into research and development.

Looking forward, ShoreCap said AZN had "a strong mid to late-stage pipeline" and said it now expects product and candidate related news flow in 2023 to lead to further upgrades.

"AZN shares trade on a FY23F PER of 16.8x, a c 5% premium versus US and European peers (mean 16.1x), which we believe is warranted based on its industry-leading earnings growth and pipeline prospects."