Broker tips: C&C Group, Ashtead, Lancashire

Berenberg said C&C's results for the year ended 29 February, largely pre-Covid-19, beat consensus by 1% on group organic profit growth. However, Berenberg questioned the fact that despite the solid showing, no new guidance was given for 2021.

As such, to help gauge the shape of C&C following the lockdown, the analysts took a closer look at its state upon entering lockdown.

"In combination with company commentary on April and May trading conditions, we note that not only did the group’s core markets enter lockdown under pressure, but off-trade volumes have not offset the near-total shutdown of the on-trade during it (c80% of C&C’s FY20 net sales)," said Berenberg.

However, the German bank said the shares were "cheap" on a 10.8x enterprise value to earnings before income and tax ratio for calendar year 2021, even after the 20% rally since C&C's full-year results.

"However, we remain holders, as questions remain about who will become the new CEO, the pace and shape of the UK recovery, as well as the margin implications of the company’s increasing focus on the UK off-trade."

RBC Capital Markets downgraded its recommendation on shares of equipment rental company Ashtead to ‘sector perform’ from ‘outperform’, arguing it was time to take some profit after a strong run.

RBC said Ashtead is an "excellent" business and well positioned to take share into a recovery.

"However, the size and shape of a recovery is uncertain, whilst the stock has performed extremely well," it said, adding that it would recommend waiting for a better buying opportunity.

The bank, which upped its price target on the stock to 2,600p from 2,200p, said the shares have performed "very well", up 8% year-to-date after a strong performance last year and now trading at a premium of 20% to 25% to the five-year average.

Despite the lower rating, RBC said some positives remain and that the current crisis should be advantageous for two reasons.

"Firstly, we would expect Ashtead to be able to take share from smaller competitors that will be unable to invest or may even disappear in the current environment. We would also expect more M&A opportunities in this regard.

"Secondly, we would also expect the ownership to rental trend to perhaps increase with many corporates looking to reduce fixed costs and improve balance sheet strength. Not owning assets is one way of achieving that."

Lancashire's £277m capital raising demonstrates the company's growth potential and ability to capitalise on a hardening market, JP Morgan said as it reiterated its 'overweight' rating on the Lloyds's of London insurer.

The FTSE 250 company placed shares worth 19.5% of its existing share capital with investors on Wednesday for 700p each - a 3.6% discount to its closing price on Tuesday.

Lancashire shares rose 8.5% to 788p at 16:13 BST and were the biggest gainers in the FTSE 350 index. JP Morgan kept its 710p price target for the shares.

JP Morgan said unlike competitors such as Beazley and Hiscox, Lancashire was not heavily exposed to Covid-19 or high-claim casualty lines. It is therefore in a good position to use extra capital to do more business in a market where prices are rising strongly.

Lancashire said prices for Florida property catastrophe policies rose 20-30% at the start of June and that rates were likely to keep rising into 2021. It also said it saw no sign of deterioration in its previous $35m Covid-19 loss estimate.

"We see Lancashire as best positioned of the London Market players currently, given that it appears to have less/no exposure to COVID-19 and casualty lines that have been the source of high claims for peers, yet may still be positioned to take advantage of a hardening market," JP Morgan analyst Edward Morris wrote in a note to investors. "We, therefore, see this raise as a stronger-than-expected indication of forward-looking growth, and reiterate our OW rating."