Broker tips: JD Wetherspoon, Mycelx Technologies, Lloyds

Having downgraded JD Wetherspoon in January, Berenberg thinks the stock could probably now be considered "too cheap", down roughly 45% since then, on the basis that its leading value-for-money offer was a "sustainable competitive advantage" and its medium-term earnings power ought to eventually return to pre-pandemic levels.

However, Berenberg said its confidence in this was "not complete", particularly because the company will now post a loss for the last 12 months, despite Covid-19 restrictions having been lifted.

"With earnings highly sensitive to small changes in volumes, price, and costs, we struggle to have conviction on the outlook, and hence reiterate our 'hold' rating," said the analysts.

The German bank said another major swing factor behind the company's profitability was management's decisions on pricing, with most companies in the sector putting up prices by "at least a mid-single-digit percentage", while Spoons opted to only increase prices "modestly" on some products and actually reduce them on many others.

"We understand its desire to rebuild demand and maintain its leading value-for-money position, but we think that it has enough of a price gap versus peers that it should be considering some more meaningful price increases to help offset inflationary cost pressures," said Berenberg.

Analysts at Canaccord Genuity initiated coverage on water treatment systems developer Mycelx Technologies with a 95.0p target price and 'speculative buy' rating on Thursday, pointing to opportunities in PFAS and the importance of the Middle East and North Africa market.

Mycelx develops and commercialises water treatment systems that provide removal of hydrocarbons, the widely-used PFAS family of chemicals, and other difficult contaminants from water and air waste streams, with its core technology component being a patented polymer media solution that uses unique bonding properties to remove contaminants.

"A step-change in traditional water treatment, the media achieves exceptionally high removal efficiency, even for the smallest droplets," said Canaccord.

"This solution is scalable, highly efficient, and commercially proven. Australia is a first mover in defining regulations for the hazardous material, and the US is set to follow by 2023, providing a significant long-term growth opportunity for Mycelx's PFAS expansion."

The Canadian bank highlighted that expansion into new markets was "a key element" of Mycelx's strategy, and said the remediation of PFAS presented "a clear market opportunity".

Canaccord also noted that the Middle East and North African markets had delivered roughly 70% of historic group revenues, with Mycelx supplying downstream solutions in the Middle East and upstream solutions in Nigeria and North America.

"We forecast circa 20% revenue growth for the group in the near term, driven by low-double-digit growth in existing markets and a step-change from new opportunities in PFAS and EOR (enhanced oil recovery). Mycelx delivers high incremental margins and high EBITDA drop-through, thanks to the commercial attractiveness of its solutions. We expect the group to remain cash positive, with first positive operating cash flow expected in 2024E."

Analysts at Bank of America bumped up their target price for shares of Lloyds Banking Group, highlighting the lender's gearing to higher interest rates and earnings resilience to economic shocks.

"Lloyds has demonstrated just how geared retail and commercial banks are to higher interest rates," BofA said in a research note sent to clients.

"With lower near-term provisions and earnings resilient to an economic shock, we expect a faster improvement in profitability, more capital generation, and increased shareholder distributions."

BofA added that Lloyds's net interest margin was responding "rapidly" to higher rates, and at the end of the second quarter, stood 30 basis point above where they were during the last quarter of 2021.

Furthermore, credit quality was described as "robust", with provisions expected to normalise from 2023 and a "stress scenario" revealed "resilience".

"Reiterate 'buy' with PO increased to 60.0p [from 57.0p] on the pace of profitability improvements and 11-12% annual capital distribution yield."