Broker tips: Wizz Air, Pearson, S4 Capital, Hyve

Berenberg said it remained "positive" on Wizz Air's "unique growth profile" following its 2020 results and several roadshow meetings and now expects the airline to capitalise on tight cost control, significant liquidity, a relatively isolated route network, and a customer demographic that is likely to resume flying earlier than those of other airlines.

Wizz Air had previously highlighted that bookings from younger passengers and those visiting friends and relatives were "significantly higher" in May versus its annual average and with an average customer age of 36, the German bank said Wizz was likely to benefit from a quicker return of demand.

The analysts estimated that Wizz Air has over 16 months of liquidity available at near-zero demand, assuming outflows of roughly €90m and highlighted that importantly, daily bookings had begun to improve to approximately €4m from under €1m - but still well shy from the €10m it often records in strong seasonal periods.

Berenberg also revised its capacity outlook and mark fuel and currency to market when taking another look at its target price and reiterating its 'buy' rating on the firm.

Barclays has retained its rating on Pearson, despite cutting its earnings forecasts for the educational publisher.

The bank, which has an ‘equal weight’ rating on the stock, said that the impact of 2020 college enrolments is “clearly the number one short-term issue” for Pearson currently.

Following analysis of college reopening plans and recent surveys, Barclays said it was now predicting “-15% enrolment decline in 2020 in Pearson’s footprint, down from -7%, and 2021 is 7% below 2019”.

It continued: “We then look at all information provided on units sold and revenue per unit to model college courseware revenue growth. Our 2020 organic growth this unit moves to -21% from -16%, with 2021 at 0% from -4%.

“We make modest changes to other forecasts, and this drives a 19% and 7% hit to earnings per share in 2020 and 2021: 28% and 13% below consensus.”

However, while it conceded these were “big numbers”, Barclays argued: “We think buy-side expectations, particularly on enrolments, are far below sell-side. It leaves Pearson on 15x price/earnings in 2021: not cheap versus other names with fewer risks. But peers in online learning have rerated sharply, and Online Programme Management/Virtual Schools now have around £1.2bn of combined value in our SOTP, despite being a small part of profit.”

Morgan Stanley started coverage of digital advertising and marketing services provider S4 Capital at 'overweight', highlighting to clients the company's quality services and expected fast growth, among other positives.

Regarding the firm's services, it called attention to its quick turnaround times and good value, given the low costs of its production hubs in Buenos Aires and India.

On the company's growth outlook, Morgan Stanley said: "We think the rapid shift to digital and the changing landscape of marketing services (tech giants, in-housing, consultancies) favour S4, and that Covid-19 disruption may further accelerate change in favour of digital-led models.

"The success in the early 2000s of the digital media buyer Aegis is a template for S4's potential."

Over 2020-23, S4 was seen growing its sales, EBITDA and earnings per share at rates similar or quicker than the European Internet services sector.

Yet the latter were trading on revenue, EBITDA and earnings-per-share multiples of 14.3, 24.6 and 37.6, against 3.3, 15 and 24 times for S4 at current share price levels.

Morgan Stanley set a 380.0p target price on the firm.

Stick with Hyve shares as the company emerges from the Covid-19 crisis, Liberum recommended as it initiated coverage of the global events operator.

Before the coronavirus pandemic Hyve's management had transformed it from a business with declining revenue to one that was growing strongly, Liberum said. The company has been hit hard by the Covid-19 crisis but after raising funds it is strongly capitalised to do well as social distancing eases, the broker added.

Liberum analyst Harry Read kicked off coverage of Hyve with a 'hold' recommendation and a 140p price target, just above the publication price of 136p a share.

Read said Hyve has an attractive range of cash-generative, market-leading events and about £50m of debt headroom after its recent equity raising. Earnings upgrades are likely if social distancing measures ease further and Hyve rolls out hosted meetings across its events.

Hosted meetings bring buyers and sellers together at events in 15-minute meetings paid for by the sponsor. Hyve acquired hosting expertise when it bought Groceryshop and Shoptalk in December, Read said. The company will survive until business picks up and it has a talented management team, he added.

Hyve will post a £91m loss in 2020 based on a 54% drop in sales as most shows are cancelled. Visitors and revenue will recover steadily in 2021 but revenue will still be 11% less in 2022 than 2019 because of lower cyclical growth, Read said.