Broker tips: Go-Ahead, Hotel Chocolat, Moneysupermarket

Absent new franchise wins, challenging market conditions in the UK bus markets, together with falling earnings from rail (excluding one-offs), suggested earnings growth would turn negative in coming years, analyst Gert Zonneveld said.

Indeed, at the half-year stage and on a like-for-like basis, regional bus volume growth was down by 1.2%.

However, Go-Ahead was exploring growth opportunities overseas and "in the meantime, a strong balance sheet and solid bus earnings, however, should allow the company to maintain or increase its dividends going forward," Zonneveld explained.

Zonneveld stuck by a 'buy' recommendation and 2,080p target price on the shares.

Berenberg downgraded British chocolatier Hotel Chocolat to 'hold' from 'buy' and cut the price target to 340p from 380p pointing to limited scope for substantial upgrades in the near term and a high multiple.

The bank upgraded the stock back in October last year as it reckoned significant upgrades could be delivered through a faster-than-anticipated rollout, growth from the new wholesale relationships and improvements to the subscription business. It also felt that higher revenue growth could drive margin expansion despite some cost headwinds.

It argued on Friday that while the company made good progress in the first half of this year, with revenue and EBITDA growth of 15%, this was in line with expectations.

"While we continue to believe the company has considerable expansion potential, we see limited scope for substantial upgrades in the near term. Thus, given the stock is on a high multiple, we downgrade to hold," it said.

Berenberg noted that the peer group is trading on 35x 2018 price-to-earnings versus Hotel Chocolat on 29x FY June 2019 estimate price-to-earnings.

"We feel that Hotel Chocolat deserves to trade at a slight discount to account for its lower-than-average EBIT margin and average EPS growth."

Credit Suisse analysts maintained their ‘hold’ recommendation on Moneysupermarket.com (MONY) as they feel the company’s new strategy will unlock new market growth but will take time.

However, analysts at the investment bank noted that recent tech investment has restricted customer experience innovation and so expects MONY to underperform industry growth of 6-7% in 2018 before accelerating, thus justifying the continued ‘hold’ recommendation.

In the same research note, the analysts revised the target price for MONY down to 300p from the previous 350p estimate, explaining that this revised projection reflects execution risks that could reduce as the market becomes more “comfortable and confident” with the group's strategy.

Regarding the content of the strategy, the analysts said: “Overall whilst we see clear merit in the group's strategy of focusing on customer conversion, retention and rebuy we doubt the market will give the group the benefit of the doubt for the strategy, at least initially. Given tangible and financial benefits from the previous technology spend are yet to be seen we await evidence of execution.”

The note also highlighted market concerns such as the slowing growth of car insurance premiums, rising interest rates and the looming energy price cap as slowing down MONY’s growth in comparison to that of recent years, projecting a 5.1% increase in revenue growth for 2018.

“Overall we see FY17 as largely solid and uneventful. Whilst we see merit in the group's Reinvent strategy (and we hope to learn more at the group's presentation today) we doubt the market will give the group the future benefits for the investment given the lack of benefits seen thus far from their previous strategy/investment.”