Broker tips: Travis Perkins, Carnival, Avast

Berenberg stated the upcoming demerger of Wickes and the sale of its plumbing and heating unit "should" result in a re-rating of the increasingly attractive core Travis Perkins business, which the analysts pointed out would now have lower leverage, higher margins, returns and growth.

As a result, the German bank thinks that the implied multiple of the stub undervalues the remaining business, which it reckons is now worth 14.6x.

Berenberg said that as Travis Perkins was the largest builders' merchant in the UK, and given the financial headroom the group has, it would expect the firm to "successfully traverse" the uncertainty over the coming months.

In the mid-term, Berenberg thinks the group's focus on trade and empowering local branch managers should help it to take share.

"We believe the current share price implies that the stub excluding Wickes and P&H is trading on 10.8x 2022 EV/EBITA pre-IFRS 16. In our view, this business is worth 14.6x EV/EBITA, implying a fair value of 1,720p, above the current share price for the whole group. Including Wickes, we believe the group is worth 2,020p," said Berenberg, which also reiterated its 'buy' rating on the stock.

Analysts at Berenberg also increased their price target for Carnival to reflect "euphoria" about recovery stocks but kept its 'sell' rating on the shares.

The broker said it "remained uncomfortable" with the balance of risks and rewards for the world's biggest cruise operator. The market is continuing to over-reward the sector's likely recovery in the next two years, Berenberg said.

Berenberg increased its price target for Carnival shares to £14 from £10 but the target was still well below the £16.35 value at the time its note was published.

Consumer demand is "shaping up nicely" and is reflected in good forward bookings but it is early days and there is no discernible improvement in customer deposits, Berenberg said. Customer confidence, which usually mirrors net yield trends, is some way below 2019, the broker added.

"While we think there is still good reason to be cautious about the timing and the pace of the resumption of service, we have amended our assumptions, now assuming a more rapid recovery both in terms of a return to full occupancy and a net yield recovery," Berenberg analyst Stuart Gordon said in his note. "This brings us into line with the current euphoria surrounding recovery plays. However, we would stress that, in our view, this is likely close to the blue-sky scenario."

Canaccord Genuity initiated coverage of blue-chip cybersecurity specialist Avast with a 'buy' recommendation.

In a note published on Wednesday, Canaccord said: "Most of the full-year 2021 sales upgrade resulted from good first-quarter trading. Full-year 2021 billings guidance remains at the low end of revenue guidance and weighted towards the second half, due to the positive impact of the first lockdown in the second quarter of 2020 and therefore a tough comparable."

It continued: "Over 80% of group revenues are subscription agreements, which are typically paid in full upfront. The group enjoys the highest adjusted earnings before interest and tax margins in the UK IT sector, at over 50%, and this is reflected in the free cash generation at around 40 cents per share."

However, it added that competition remained “considerable”, including from rivals such as McAfee, Symantec and Sophos.

Canaccord, which has a price target of 550.0p on the stock, concluded: "Our target implies a PE of around 21x for the 2021 full-year, versus the UK IT sector at around 33x. Avast has best-in-sector adjusted EBIT margins, versus the sector at around 14%, current free cash flow of 6% versus sector under 3%, and high recurring revenues (sector around 55%).

"Our valuation discount to the sector reflects Avast’s weaker top line forecast sales compound annual growth rate of around 6%, versus the sector at 10%, and existing strong competitive pressures."