Broker tips: Bellway, Whitbread, Berenberg

Goldman Sachs has removed Whitbread from its Pan-Europe Buy List, downgrading it from ‘buy’ to ‘neutral’ on the back of its third quarter results.

The investment bank said on Monday that UK revenue per available room (RevPAR) growth for the FTSE 100 company, which owns hotel brand Premier Inn, has slowed.

The four week average RevPAR is down to 2% in the regions and down to -2% in London.

“While RevPAR is volatile, reassessing the cycle suggests the regions could be suffering overshooting, while we expect the ongoing growth of Airbnb, sterling strength, and geopolitical risk to further impact London.”

However it did note that the company has strong organic growth prospects.

“Whitbread’s portfolio growth contributes c.8% pa to revenues 2016-19E, underpinned by its strong position and the structural trends in key markets.

“Premier Inn (64% of FY16E EBIT) is the largest budget-branded hotel network in the UK and is growing market share. Costa is the largest coffee shop chain and benefits from its value proposition, increasing consumption/capita, and mix shift to fresh coffee and brands.”

Goldman Sachs revised its price target down from 6,105p to 4,990p due to changes to its estimates.

“We lower our cyclical growth assumptions (LFL RevPAR to 2%), leading our 2016-19 EPS down 8% on average. Our 2017 EBIT is 5% below Bloomberg consensus.”

Berenberg downgraded Cobham to ‘sell’ from ‘hold’ and cut the price target to 260p from 300p.

The bank pointed to persistent end-market headwinds, a stretched balance sheet and slower-than-anticipated working capital improvement.

Berenberg said that following the company’s third quarter trading update and after revisiting trends in its end markets, it assumes only 1% organic growth next year.

Berenberg noted slower-than-expected recovery of short-cycle products in end-markets such as Marine SATCOM and oil and gas, and lower demand in the fly-in fly-out business in the Aviation Services division.

It added that the oil price remains low and we are yet to see a recovery in the mining environment.

It cut its full year 2015/16/17 earnings per share estimates by 2% year-on-year to reflect persisting headwinds in Marine SATCOM and Aviation Services.

This generates flat earnings growth in 2016, partly affected by a 4% dilution from the Composites divestment, Berenberg said.

Citi has upgraded Bellway from ‘neutral’ to ‘buy’ on the back on a positive trading update last week.

The FTSE 250 housebuilder said on Friday it expects total completions and average selling prices to rise in the full year as it reported an "excellent" start to the current financial year.

In a trading update for the 18-week period from 1 August to 6 December, it said the reservation rate increased 12% to 165 homes per week, up from 147 in the same period last year.

Housing completions for the year to the end of July 2016 are expected to rise around 10%, while the average selling price of completions in the current financial year is also expected to increase 10%.

Citi said the trading update pointed to solid underlying trends underpinning management’s guidance upgrade to deliver strong volume growth and margin expansion for the 2016 financial year.

“The government’s recent policy announcements in the autumn statement also support a more favorable longer-term outlook for the sector and we expect Bellway to be well positioned in this backdrop especially benefitting from the support to Help to Buy London and supply of brownfield land.”

The investment bank increased its estimates for 2017 to 2018 by 15% to 20%, and lifted profit before tax estimates to £440m and £480m for 2016 and 2017 respectively.

“We expect the group to continue to deliver good volume growth, strong margins, attractive double-digit growth in net assets over the next three years and payout higher dividends.”

Citi also increased its target price from 2,660p to 2,980p.