Broker tips: GVC Holdings, Asos, Wizz Air
GVC Holdings' takeover of Ladbrokes Coral should bring greater scale and geographic diversity as well as boosting earnings and cash growth, said analysts at Barclays as they initiated coverage on the online gaming group on Tuesday.
These three reasons make the deal attractive and, on a proforma post-deal basis, GVC's shares look "cheap" on a price/earnings ratio that would fall from 9-11 in 2020 to around 8-9.5 in 2021 "when all cost synergies should have been delivered".
On Barclays confidence in the deal, which was announced late last month, shares in the owner of Foxy Bingo and Partypoker were given an initial 'overweight' rating and a 1,066p target price.
The risks of a large merger are tempered as both sides of the management team have strong track records of integrating complicated businesses and of delivering even better cost synergies than expected.
Deutsche Bank upgraded online fashion retailer ASOS to ‘buy’ from ‘hold’ and hiked the price target to 7,400p from 5,800p.
The bank said ASOS is well placed to continue to benefit from the online channel shift, underpinned by a high pace of active customer number additions and expansion into the activewear and beauty categories.
“In particular in 2018 we expect strong growth in Europe, as the company delivers the full service and cost benefits of its localised logistics and digital shopfronts. Meanwhile, customer economics remain very strong with payback on acquisition costs more than twice as fast as at Zalando.”
Deutsche Bank outlined five reasons why it is positive on ASOS. It pointed out that the channel shift online continues and said ASOS should continue to gain channel share. In addition, DB said that Face & Body and Activewear categories increase the total addressable market.
It also said that international expansion, especially in Europe, has strong prospects, and the customer economics remain very strong.
Analysts at JP Morgan hiked their target price for WizzAir sharply higher, from 3,625p to 4,100p, driven by the airline's recent investments in expanding capacity, including through the acquisition of 146 Airbus jets and after clinching Monarch's slots at Luton.
In particular, the investment bank noted the rising propensity for air travel in core Central and Eastern European markets and the carrier's "very competitive" cost base, which it said was second only to RyanAir's.
Despite that, JP Morgan said its estimate for Wizz Air's net income in fiscal year 2018 was more or less in-line with the company-compiled consensus, although that for fiscal year 2019 was 4% ahead.
Longer-term, the impact was more pronounced, according to the analysts, who were now projecting a compound annual rate of growth over the the period running from 2017 to 2026 of 16%, versus 11% previously.
JP Morgan also called attention to an expected pick-up in fuel efficiency gains from fiscal yar 2020 onwards, as the share of more efficient 'neo' aircraft in its fleet rose from 3% in fiscal year 2019 to 48% by 2024.