Broker tips: Treatt, Rolls-Royce, Asos

Berenberg stated that Treatt's FY22 results were in line with its expectations and at the top end of revised guidance range but also noted that while top-line progress was "evident", with underlying revenue growth of approximately 9%, this had been "marred by one-off impacts" that weighed on margins.

"While the 6ppt decline in EBIT margin that was experienced in FY22 is difficult in ignore, its latest results were a good reminder of the progress that Treatt has made. The issues that it faced in FY22 have caused management to revisit how it forecasts revenues, manages pricing and hedges its FX exposure – we see this as a sign of a maturing business. Furthermore, Treatt is now "95% complete" in its move to its new UK headquarters, a milestone that should support improved European growth prospects through the medium term, which will facilitate an improving return-on-capital profile, in our view," said Berenberg.

The German bank added that 2023 looked set to be "a normal year" for Treatt, featuring price-led growth, improved margins, and "a more meaningful contribution" from its coffee division.

"We are also gaining more confidence in Treatt's margin recovery, which is reflected in our EPS estimates lifting by 1%/6%/4% for FY23/FY24/FY25 respectively," concluded Berenberg, which also maintained its 'buy' recommendation on the stock.

Analysts at Barclays initiated coverage on engine maker Rolls-Royce at 'overweight' on Wednesday, stating it was time to "revisit the thesis" on the stock.

Barclays, which gave the stock a £1.10 target price, stated Rolls-Royce was "a consensual, overcrowded short" but said it sees a "value unlock" ahead, with risks skewed to the upside.

"In our view, negative widebody sentiment is troughing, given its late-cycle nature and slower pace of recovery relative to narrowbody, exacerbated further by extended and worsening China lockdowns," said Barclays.

However, Barclays also noted that airframers had recently offered positive widebody outlook commentary with the 787 to 10 per month by 2026, and upside risk to A350 volumes post 2025.

"We see positive catalysts ahead on the tailwind of engine flight hour recovery; a roughly 70%-correlated price/multiples driver, triggered by 2023 China reopen," said the bank.

Credit Suisse downgraded Asos on Wednesday to 'neutral' from 'outperform' and slashed its price target on the stock to 660.0p from 1,250.0p as it argued that the operating initiatives highlighted at the full-year results are insufficient to drive a material change to the company's challenges.

CS also said there is no clarity on the timing and nature of structural change. "Inventory levels are far too high, both cyclically and structurally, so the buying model needs to change," the bank argued.

"The renewed commercial model is a starting point for change, although details are unclear and strategically, we believe that Asos may have to downsize in markets where it has no competitive advantage or scale, potentially including the US."

CS said the stock's valuation does not reflect the brand value, 26.0m customers or infrastructure, with the current market cap equivalent to seven years of capex. However, the bank said it sees little likelihood of M&A and believes an equity raise is possible.

"There is little clarity on most P&L metrics and we cut our profit before tax forecasts for FY23 and FY24 to £6.0m and £77.0m respectively (versus consensus £25.0m and £58.0m), which would still require a big improvement in 2H."