Broker tips: JD Sports, Dixons, Workspace, Keywords

JD Sports completed its acquisition of US sports lifestyle retailer Shoe Palace on Tuesday and Berenberg noted that while JD's recent approach of Debenhams weighed on sentiment, this was a deal that investors would like.

"Shoe Palace is a high-quality, complementary business, which strengthens JD's position in the US market and further increases its relevance to consumers and brands," said the analysts.

The German bank, which kept its 'buy' rating on the stock in place, stated that on conservative assumptions, the roughly £510.0m deal valued Shoe Palace on an attractive 13x enterprise value to earnings before interest and taxes ratio and added that it was roughly 3% accretive to earnings, with further scope to enhance performance and profitability.

"This is a great example of how JD will leverage its strong balance sheet to consolidate the market and create value. We raise our earnings forecasts circa 8% to capture this deal and stronger underlying trading, and increase our price target to 975p," said Berenberg, which added that JD remained one of its top picks in the sector.

Liberum lifted its price target on Dixons Carphone on Wednesday to 175p from 150p following the company’s first-half results, reiterating its ‘buy’ rating.

The broker said the analyst call was reassuring and consistent with the "strong" results reported.

"Balance sheet strength was an important highlight, with management noting that if decent trading continues the group could eliminate net debt by the year-end," it said.

Given the current momentum, Liberum bumped up its FY21 group EBIT estimate by 13% to £182m, driven by more optimistic full-year like-for-like sales assumptions.

"We leave our outer year forecasts largely unchanged, but upside risk could emerge as the transformation benefits and UK&I Mobile recovery plan continue to impact," it said.

JPMorgan Cazenove hiked its price target on office space provider Workspace on Wednesday to 820p from 700p.

The bank said the potential for further lockdowns early next year cannot be ruled out, putting an overhang on what could have been a "more normal" letting period for the company. As a result, it is not surprised the shares have fallen 6% over the last week.

"However, a more constructive view, we think, can be formed looking beyond 1Q21, with the vaccine rollout and anticipated onset of the economic recovery (barring any further shocks)," JPM said. "We, therefore, expect WKP shares to be firmly higher on a 12 months view."

JPM, which maintained its 'overweight' rating on the stock, said the valuation argument has closed since late September, with the shares rallying from a more than 50% discount and capital value of around £400 per square foot.

"But, despite this, we still see the current valuation as attractive should there be no further shocks to the economy," it said, adding that its base case is for a Brexit deal.

Barclays pinned an 'overweight' rating on Keywords Studios as the bank started coverage of the acquisitive video games developer.

The bank said outsourcing will be a bigger part of every games project as the industry matures and pointed out that Keywords has advantages in scale, technology and reputation over its rivals.

Barclays, which initiated coverage on the stock with a target price of £29.50, noted that Covid-19 had been a net headwind for Keywords in 2020 but still predicts 10% growth for the group, while rivals could still face tough comparables.

Barclays added that Keywords, which agreed to buy US game development services provider High Voltage for as much as $50.0m after striking another deal to acquire Los Angeles-based g-Net Media for up to $32.0m, would benefit from further mergers and acquisitions.

"We believe M&A is a good thing for Keywords, and there will be plenty more. This strong story does not come cheap but we think the combination of underlying forecast momentum and M&A can maintain good share price performance," Barclays concluded.