Broker tips: Zoopla, Victrex, Sky

Barclays downgraded Zoopla to ‘equalweight’ from ‘overweight’ but lifted the price target to 295p from 270p, saying the valuation on the core property services business is up with events.

The bank said it still sees an attractive long-term story, but another near-term share price lift requires overly-optimistic assumptions on synergies – which are a full year 2017 story, not a near-term driver – or OnTheMarket crumbling quickly, which is not the base case.

Barclays said Zoopla’s trading update was evidence of the positive trends currently driving uSwitch, while the acquisition of Property Software Group highlights management’s “exciting long term vision”.

However, with uSwitch upgrades now in the numbers, the near-term focus returns to Property Services, which is still the key driver.

“Here we have cut underlying numbers and we anticipate both 1H and FY16 results to show only low single digit average revenue per agent growth, a reminder of the lack of pricing power for a battling no.2.”

Barclays reckoned the most likely outcome for Zoopla in full year 2017 is another year of very little ARPA growth and only a modest recovery in agents.

As a result, the valuation of around 17x 2017E earnings before interest, taxes, depreciation and amortisation on the core Property Services business is up with events.

Berenberg downgraded Victrex to ‘hold’ from ‘buy’ and cut the price target to 1,620 from 1,800 citing a lack of earnings catalysts from consumer electronics capacity.

In addition, the bank pointed to the introduction of new PEEK (polyether etherketone) capacity by Solvay. It noted that Solvay is Victrex’s largest competitor in PEEK, adding that by the end of 2016, it will complete a widely known capacity expansion from 1,000 to 2,500 tonnes.

Berenberg said that following analysis of the potential uses of PEEK within consumer electronics, it concluded that its widespread adoption of PEEK for use in smartphones beyond lower-volume specialities, such as films for speaker diaphragms, if it does occur, may favour Solvay.

“Solvay’s ability to offer cheaper alloys of PEEK with other polymers from its portfolio could give it a significant advantage on cost. While we understand Victrex is working on using other, potentially cheaper, PEEK composites, the underlying issue is that the mechanical advantages of Victrex’s ‘Type 1’ PEEK are arguably less relevant for electronics than other segments, such as aerospace.”

The bank cut its earnings per share estimates for 2016 and 2017 by 6.4% and 2.2%, respectively, to reflect a drop in expected consumer electronics volumes and a more subdued outlook for Victrex’s oil and gas business.

Numis reiterated an ‘add’ rating and target price of 1,250p for Sky after the broadcaster reported its quarterly interims.

Sky said in the nine months to the end of March revenue rose 5% to £8.7bn, while operating profit rose 12% to £1.14bn.

Sky chief executive, Jeremy Darroch, said it had been a strong quarter, with the company passing a “major milestone” of 40 million products in the UK and Ireland. He said there had been pleasing response to the premium Sky Q box ahead of first installations in the current quarter.

However, the company said it won 177,000 new customers in the three months to March, 160,000 fewer than the previous quarter.

Nevertheless, Numis said: “Net product growth of 177,000 was ahead of consensus 162,000 with a notable performance in Italy and encouraging early response to the premium SkyQ product.

“We upgrade our lower end full year 2016 pre-tax profit/earnings per share forecast to £1,365m/63p (was £1,350m/62p); consensus is 63p. We leave our 2017 estimates, which include the higher costs of the new Premier League contract, unchanged at £1,325m/61p (consensus 59p).”