Broker tips: Britvic, Betfair, Zoopla

The bank said Britvic’s strategy is sound.

“The investment in the UK is required, Brazil should be a medium-term growth driver and we continue to see good growth potential from Fruit Shoot in the US.”

However, it said the combination of the acquisition of Ebba and the anticipated three-year investment programme of around £225m in the UK places considerable pressure on free cash flow generation and reduces the returns profile for the next three years.

The bank updated its forecasts for both the increased capex assumptions for the next three years as well as factoring in a slower growth environment for the soft drinks markets that Britvic operates in.

Its earnings per share estimates fall by 5% to 46.1p for full year 2016 and 8% to 48.8p for 2017.

HSBC said its forecasts suggest EPS will rise by 1%, 6% and 9% in FY2016, 2017 and 2018, respectively.

Deutsche Bank upgraded Betfair to ‘buy’ from ‘hold’ and lifted the price target to 4,200p from 2,650p.

The bank said it reckons Betfair can grow revenues /profits materially above the market growth rate following the group’s relentless focus on product innovation coupled with brand investment over the past 24 months.

In addition, DB sees upside risks to forecasts and said the upcoming merger with Paddy Power offers the ability to leverage higher returns on incremental investment given the material increase in scale.

The bank estimates that in year two of the merger the combined group would be trading on a 16x EV/EBITDA multiple or 23x earnings.

“We see these valuation metrics as attractive in light of the combined group’s greater scale and ability to leverage higher returns on product and marketing investment.”

Deutsche lifted its full year 2016 EBITDA forecast by 19% to £136m and its earnings per share estimate by 23% to 96p based on strong core Betfair revenue growth .

For full year 2017, it raised its EPS estimate by 22% to 116p and assumes EBITDA growth of 18% to £161m.

Zoopla Property Group was upgraded by Exane and Investec on bullishness about the company's ability to maintain its position in the market for property websites.

Exane moved to a 'neutral' rating from 'underperform', with a target price of 220p, while Investec raised its recommendation to 'hold' from the previous 'sell' and set a 231p price target.

Exane admitted its consistently cautious position on Zoopla had reflected a view that its operations and pricing would suffer a "significant, lasting" effect from the launch of the new rival OnTheMarket website from estate agency collective Agents Mutual, together with the "must have" status of Rightmove.

But following around 30% cuts to 2016 profit forecasts since its IPO, Exane analyst William Packer now sees the consensus estimate for core portal earnings before interest, tax, depreciation and amortisation (EBITDA) as achievable.

"Based on conversations with our network of estate agent contacts, and with Agents Mutual at under 1k of intent after seven months of recruitment we remain cautious on its prospects for success and expect the challenger to be unsuccessful in reaching its 7.5k letters of intent target. We expect the status quo to hold, with Agents Mutual remaining a significant #3," Packer wrote.

Stats from online traffic analysts Alexa showed the relative gap between Zoopla and Rightmove in website visit ranking had widened since summer data showed Zoopla had around 46m visits per month in July compared to its rival's 110m in June.

So, Investec's Steve Liechti likewise said that while he remained concerned on the widening gap in Zoopla’s portal proposition strength versus Rightmove, as well as the persistent drag from OnTheMarket and reliance on uSwitch's ‘mono vertical’, he believes these are "now more factored into the share price" since the shares fell around 10% in the last month.

While the knock-on impact of OnTheMarket (OTM) is weakening Zoopla’s market position against Rightmove, with lower inventory, member stickiness, traffic and questions on lead quality, Liechti said he still believes Zoopla offers return on investment to its members and that its model and economics remain strong.

"Net churn to OTM stabilised in Aug/Sep and we do not expect significant further loss with limited OTM traction in terms of membership growth and visitors. Although OTM looks likely to stay, we believe our forecasts already account for this."