Broker tips: Sage, Carnival, Tui, Deliveroo

Citi upgraded its stance on shares of software company Sage on Thursday to 'buy' from 'neutral' as it pointed to improving news flow.

"Covid uncertainty and the short-term margin outlook have led to Sage underperforming since its 100.0p price fall to 588p on FY21 results day (20 November 2020)," Citi said.

"We believe that news flow has begun to turn more positive and the valuation will begin to reflect growing confidence in the group’s longer-term growth prospects."

As a result, the bank said it has adjusted its longer-term top-line growth and margin assumptions in the discounted cash flow-based valuation model, giving it a new target price of 770p per share from 619p.

"In addition, Sage's cash flow characteristics and balance sheet strength would, we believe, support a leveraged buyout-type takeout price of 790.0p."

Peel Hunt hiked its price target on Carnival on Thursday to 2,100.0p from 1,850.0p following the cruise operator's first-quarter update a day earlier.

The broker said Carnival's statement and call were "more positive than expected" regarding forward bookings and pricing.

"Additional evidence of pent-up demand increases our confidence in a bounce-back in trading next year, with potential for an upside surprise from higher pricing," it said.

"With the UK-listed shares still at an irrational discount to the US-listed we reiterate our ‘buy’ recommendation and increase our multiple-based target price."

In its update on Wednesday, Carnival posted a widening of its net loss in the first quarter due to the pandemic, but said volumes for all future cruises were around 90% higher than in the final quarter of last year, thanks in part to pent-up demand.

Deutsche Bank recommended sticking with Tui shares as it initiated coverage of the world's biggest travel and tourism company.

The bank gave Tui's shares a 'hold' rating with a price target of 375.0p.

The Anglo-German tour operator has been hit hard by Covid-19 restrictions, which have crushed the market for foreign holidays. In March the company trimmed its capacity for the peak summer months to 75% of 2019 levels from 80% though it said bookings were encouraging and showed strong pent-up demand for travel.

"Tui is a fully integrated leader in the tour operator business in Europe, with the markets and airlines divisions funnelling traffic to the holiday experiences divisions," Deutsche analyst Andre Juillard said in a note to clients. "Tui is a highly seasonal business, with almost all of its full-year profits earned in Q4 (Jul-Sep), giving the group's earnings a skewed risk profile if the environment remains as it is now."

Analysts at Berenberg initiated coverage on Deliveroo with a 'hold' rating on Thursday, stating the group has good growth prospects but faces stiff competition and regulatory uncertainty.

The company offers a great service and has a strong brand to capitalise on growth in households ordering food to eat at home, Berenberg said as it started coverage of the shares with a price target of 310.0p.

Deliveroo claims 90% of transactions come from markets where it was number one or two but Berenberg noted it was up against well-funded competitors. However, the analysts noted that it can use the £1.0bn raised from its recent flotation to respond.

The initial public offering has been described as one of the worst in London's history after a series of big fund managers refused to take part and the shares plunged on the first day of trading. The IPO, priced at 390p, was hit by doubts about Deliveroo's employment practices, a high valuation and a dual-share structure that many investors did not like.

"We see the stock as modestly undervalued at current levels, but less attractive than Delivery Hero, which we believe offers sustainably higher growth and has more dominant positions than Deliveroo. We also believe that Delivery Hero faces less risk from the aforementioned regulatory headwinds, given its greater exposure to emerging markets, which structurally have less developed employment regulation."