Broker tips: Burberry, Lloyds, Britvic

It said since the company announced a review of the global market, its initiatives, efficiency programmes, productivity and capital allocation, expectations have risen in anticipation of change.

Nomura expects the review to be thorough given chief executive Christopher Bailey will have been at the helm for two years in May.

“A change of the group’s approach would be a positive to the market. Despite a recent rebound in the stock, we see potential for a greater valuation if Burberry can successfully drive productivity measures, while being more disciplined on cost and capital allocation,” the Japanese bank said.

Nomura said the company had five areas of focus: productivity, conversion, product, costs and capital allocation and share buybacks.

It said a focus on VIP/regular customers may be more effective than attempting to attract new customers.

It also said its product analysis suggests range overlap.

“Consolidating the sub-brands should drive better availability, an improved shopping experience and a more coherent product architecture,” said Nomura.

It warned of a tough trading environment and the potential costs of implementing initiatives, but said it sees a favourable forex environment and initial benefits of cost initiatives offsetting in full year 2017.

In addition, Nomura said the stock’s valuation appears attractive despite the lack of short-term growth.

It expects full year results on 18 May to be a catalyst.

UBS reaffirmed Lloyd's Banking Group as its 'top-pick' on Friday thanks to the lender´s capital generation targets, which in its opinion underwrote a dividend yield of over 8% in a Footsie that was "increasingly starved" of payouts.

Analyst Jason Napier highlighted that the total dividend payout of £2.0bn for 2015, against a statutory profit of £0.5bn, "should provide significant reassurance to investors in Lloyds (and RBS) that the regulator is comfortable with current capital levels."

Lloyds´s 200 basis point target for capital generation per year was worth 6p a share in payouts, Napier said in a research note sent to clients.

Furthermore, the lender´s guidance for loan losses in 2016 was as expected, while net interest margins were expected to outpace consensus estimates.

To take note of, UBS believed fears for the latter were much worse than the company-collated consensus of 2.65%.

In the analyst´s opinion, Lloyds also got too little credit for its ability to manage front and back book margins for the benefit of its shareholders.

Management had also targeted continued improvement in the bank´s cost/income ratio for every year between 2016 to 2020 - despite the low interest rate environment.

"LBG is trading with a yield well over 8% each year from 2016-2020. We have the stock at 1.2x tangible net asset value for a 14% forecast return on tangible equity. We think LBG is good value and retain it as our top pick in the UK. Our sum of the parts-derived target price remains 88p – 30% capital upside."

Berenberg initiated coverage on the four UK mid-cap soft drinks manufacturers, highlighting a preference for Britvic and Nichols.

“We feel this market is often overlooked by investors due to the lack of absolute growth in the end-markets. However, we believe these businesses score well on several elements relative to our broader UK mid-cap coverage.”

The bank said they typically generate strong and stable margins driven by operating efficiencies, they can deploy capital on value-accretive M&A, and they have demonstrated a good level of success by UK and international expansion.

It started Britvic and Nichols with a ‘buy’ rating and 850p and 1,450p price targets, respectively.

The bank said its preference for these two was mainly due to a combination of a propensity for future EPS upgrades and reasonable valuations.

On Britvic, it said EPS momentum was stabilising and there are several areas that could surprise to the upside, such as margin uplift from supply chain investment, Fruit Shoot’s move into the $2bn US multipack market, and the International division returning to profitability.

“We believe these upside risks are not reflected in the current 14.3x FY 2016E P/E multiple, which makes the stock the cheapest among soft drinks peers and in the broader consumer sector.”

As far as Nichols is concerned, it said recent acquisitions of Feel Good and Noisy Drinks have helped drive strong EPS momentum. In addition, the company generates much higher margins and return on invested capital than most peers.

Berenberg started AG Barr and Fevertree with ‘hold’ ratings and 550p and 570p targets, respectively.

It said Fevertree was an exciting prospect and demonstrates many of the characteristics it looks for, but growth potential is more than reflected in the valuation.

On AG Barr, it said the group has a number of opportunities but it is too early to be confident of success, so the current valuation is justified.