Broker tips: Compass, Tharisa, Savills, Persimmon, Watkin Jones, Bellway

RBC Capital Markets said Compass' recent full-year results showed the group had captured "positive organic growth momentum" but also noted that had come with corresponding new business drag on margins, recent buybacks and foreign exchange movements.

The Canadian bank also stated that Compass was "a very well-managed business" that was taking market share and benefiting from increased outsourcing, with a credible path towards eventual full margin recovery to pre-Covid 19 levels.

"However, we see the valuation as stretched relative to relevant peers. Unlike other sub-sectors of the Business Services sector (and wider market), consensus arguably assumes almost no recessionary pressures over the next couple of fiscal years, despite a clear deterioration in some of the most reliable economic indicators," said RBC.

"We see more resilient, more attractively priced alternatives elsewhere under our coverage and believe Sodexo represents better value, more defensive exposure to the catering/multi-service segment."

Analysts at Berenberg nudged up their target price on integrated resource group Tharisa from 240.0p to 260.0p on Monday after the group's full-year underlying earnings beat expectations.

Berenberg said Tharisa's revenues of $686.0m came in "a touch light" versus its $729.0m estimate, mainly due to a platinum group metals effect.

However, the analysts stated lower costs, particularly in the form of lower cost of commodities and lower mining costs, helped drive an EBITDA beat for the group - coming in at $236.0m versus their $230.0m estimate. Earnings per share for the year were in line with guidance and expectations at $0.54.

The German bank said that Tharisa's cash flow statement showed it had generated cash from operations of $174.0m, below its $192.0m estimate, mainly due to working capital adjustments, while capex of $105.0m was below its $132.0m estimate, offsetting the lower cash from operations.

"We adjust our model for the full-year results and make some adjustments to our 2023 estimates, mainly to reflect lower costs that we expect at the mine. This results in an increase to our 2023E and beyond estimates," said Berenberg, which stood by its 'buy' rating on the stock.

Peel Hunt downgraded Savills to 'add' from 'buy' on Monday as it pointed to "tougher times".

The broker said it was cutting forecasts for Savills, with its full-year 2022 pre-tax profits estimate down 11% and FY23/24 estimates down 18% and 15%, respectively.

Peel Hunt said transaction activity was under pressure, particularly in commercial markets, as yields and values adjust to changed interest rate expectations.

The broker said longer-term prospects were unchanged as it stated it believes that property market activity will normalise over the next couple of years, allowing Savills to resume its longer-term growth track record.

"We continue to believe Savills is a high-quality business that should deliver attractive long-term growth," it said. "However, the current market softness and FY23E outlook see us cut our target price from 1,275p to 1,000p and we downgrade our recommendation."

Jefferies downgraded Persimmon and Watkin Jones on Monday but upgraded Bellway as it took a look at UK housebuilders.

Persimmon was cut to 'hold' from 'buy' and had its price target reduced to 1,436.0p from 1,485.0p, with Jefferies saying that with the new dividend policy removing not only the double-digit yield, but also its predictability, and the step-up in fire-safety costs - particularly to remediate defects - much of what it had learned about Persimmon in the past decade appeared to have been "unwritten".

"The much higher gross margin on its land bank should continue to drive differentiated return on equity. However, investors may likely require continued evidence that intake margins remain structurally higher than peers before Persimmon's valuation returns to its previous premium," it said.

The bank also downgraded Watkin Jones to 'hold' from 'buy' and slashed its price target to 111.0p from 225.0p but stated that with £75.0m of cash on the balance sheet and around £150.0m of after-tax operating profit from forward sales, it can be argued the current market cap of Watkin Jones was underpinned.

"However, until investors feel comfortable, the 'Residential for Rent' model still works for the developer, in a higher interest rate environment we see the stock as range-bound," it said.

Going the other way, Jefferies upgraded Bellway to 'buy' from 'hold' and lifted the stock's price target to 2,458.0p from 1,928.0p, adding that it was now one of the cheapest of the UK housebuilders.

"Sitting middle-of-the-road in many aspects in the sector…previously we saw Bellway as un-differentiated. However, staring into a downturn, it has a c-suite with unrivalled housebuilding experience, and its land buying through the last two years positions it not just to better manage its cash near term but also to grow into market improvements when they are seen."