Broker tips: GSK, Sage, Burberry

“We have upgraded GSK to ‘buy’ from ‘hold’ with a target price of 2,000p as we believe that the improving yield quality will continue to attract investors down to a yield of 4% or less,” Jefferies said in note to investors.

Jefferies said it believes that fears of a dividend cut associated with the appointment of new chief executive are “overdone” and that the macro environment, with falling bond yields, could see the shares driven up to a 4% dividend yield.

Andrew Witty has decided to step down as chief executive and GSK has said the search for a replacement is currently underway.

“GSK's 4.9% dividend yield is becoming increasingly well covered as its earnings rise, helped by recent foreign exchange movements, a strong performance from ViiV (GSK’s healthcare business) and better than expected margin progression,” Jefferies added.

Deutsche Bank initiated coverage of software company Sage at ‘buy’ with a 760p price target.

DB said Sage's revenue growth has accelerated as it migrates its large installed base from a traditional licensing model to subscriptions, reducing churn and increasing average customer run rate.

“We think this acceleration can continue and are satisfied that the risk of defection to competitors is mitigated by Sage's strong brand, service and local market expertise.”

In addition, it said piggy-backing Cloud platforms offers a chance to capture additional growth in the low end.

Deutsche pointed out that although the company’s core remains in on premise, desktop software, it is building its cloud portfolio with Sage One and Sage Live and has released subscription-based, “cloudified” versions of its flagship products.

The bank reckoned this could drive an average revenue per customer increase within its traditional customer base, with relatively low risk of churn to competitors like Xero and Intuit.

Sage One should also allow the company to gain share in the currently barely-addressed 0-10 employee small business segment.

“We see encouraging signs that Sage’s old complacency has been replaced by a will to succeed in its changing landscape,” DB said.

UBS left its ‘buy’ rating on Burberry unchanged on Thursday but cut its target price to 1,650p from 1,700p.

“Our ‘buy’ rating on Burberry is based on our view that the share price does not reflect the true value of the retail productivity improvements and cost savings plan laid out at the strategy update on 18 May,” said UBS analyst Helen Brand.

“We see the news flow this week as supportive for the medium term including both the management changes as well as sequentially improving like-for-like.”

Burberry on Monday announced the departure of chief executive Christopher Bailey as it reported a 3% drop in first quarter like-for-like (LFL) sales, which was less than the 5% fall the market had forecast.

The FTSE 100 fashion group said it still expected low single-digit percentage growth in total retail revenue for the full year, but said it expects first-half wholesale revenue to be down by over 10% and full year licensing revenue will be down by about £20m due to cancellation of the Japanese agreement.

Directors continued to expect 2017 adjusted profit before tax will be more weighted to the second half than in the previous year, but it was calculated that there would be a £90m benefit from currency rates if they remain at current levels, up from the circa £50m foreseen at April's rates.

“Our reverse discounted cash flow suggests that the stock is pricing in just low single digit uplift in sales densities to fiscal year 2019 which is below our circa 3% LFL uplift each year,” Brand said.

“Half of this comes from e-commerce and the remainder from retail productivity."

Following the first quarter trading update, UBS has lowered its fiscal year 2017 forecast for profit before tax by 3%, mainly due to Burberry’s £90m foreign exchange benefit guidance missing the bank’s £100m estimate.