Broker tips: Cranswick, Pennon Group, Croda

The company, which supplies sausages to Tesco and Sainsbury's under their own label lines, said revenue gained almost 10% to £529m, higher than management expectations. Revenues were supported by an improvement in volumes and margins.

“With over 20% profit growth delivered in 1H, Cranswick continues to be a key stock pick for us,” said Investec analyst Nicola Mallard.

“We expect growth to be largely first half-led this year, given a tougher margin comparisons in the second half, but still see solid volume progress continuing in the second half of 2016 and beyond. We upgrade full year estimates for 2016 and 2017 pre-tax profit by 3% and our target price increases by 1%.”

Investec has downgraded Pennon Group from ‘buy’ to ‘hold’ after the company’s strong share performance.

The FTSE 250 water company posted a rise in first half profit and earnings on Friday despite a small drop in revenue, as all businesses across the group performed well.

For the half year to the end of September, pre-tax profit rose 6.8% from the same period last year to £106.8m, while earnings before interest, taxes, depreciation and amortisation grew 15.9% to £231.7m.

Revenue nudged a bit lower, however, down to £689.1m from £692.3m, with sales at waste unit Viridor falling due to lower construction revenue from service concession arrangements as facilities come on-stream.

Investec said on Monday that the the stock has performed strongly since September, driven by investors’ reassessment of risks concerning Viridor and the potential for overcapacity in residual waste markets.

It noted that the results demonstrate strengths in both the regulated and non-regulated businesses.

“A low cost of capital is a key competitive strength, and perhaps legitimises Pennon’s group structure,” it said.

“But it remains a major source of regulated returns and is exposed to regulatory risk in the run-up to PR19, where risk-sharing mechanisms on financing will be considered.”

Investec also revised its price target up from 800p to 840p.

Goldman Sachs has given Croda a 'buy' rating and taken a 'neutral' stance on Victrex as it began coverage on 16 companies in the European chemicals sector.

Goldman expressed an initial preference for 'downstream' chemicals companies and their more stable margins and return rather than more cyclical 'upstream' producers.

Croda was one of the stocks added to the investment bank's conviction-buy list, on the expectation of renewed earnings momentum from improvements in the personal care segment, the Yorkshire-headquartered group's biggest earnings contributor, along with tailwinds from raw materials prices and strong pricing power.

After two challenging years of slowing growth and forex headwinds, GS confidently set a price target offering more than 20% upside at 3,400p, as it predicts consensus earnings upgrades as the FX effects fade and sustained margin improvements are reaped from the new bio-surfactant site at Atlas Point, Delaware.

"As industrial capex slows, we expect consumer companies to emerge as relative winners. Croda is ideally positioned to benefit from this theme," Goldman said.

Analysts predict consumer momentum will likely outpace resource-linked industrial growth in both developed and emerging markets, which also increases Croda’s strategic appeal.

For Victrex, which will gain less from raw material tailwinds, a 12-month price target of 2,000p offers a potential gain of 5% as the high-performance polymer producer faces a tough year for growth and returns in 2016.

It calculated that sales and earnings are forecast to increase by 3% and, with a delayed oil & gas impact and tough comparable figures from last year in the electronics business, its forecast of £110.3m earnings before interest and tax next year is circa 4% below consensus.

However, from 2017, as several 'megaprojects' come on stream, Goldman said it expects Victrex to show its typical strength in sales growth again.

"The company’s project pipeline is supported by its unique industry position and sharp focus. The resulting pricing power stands out among other industrial-exposed chemical companies."