Broker tips: Tullow Oil, SSP, Unite, Polypipe, Redrow

Canaccord said on Wednesday that "credit matters", noting that Tullow's recent trading statement highlighted the scale of the operational and financial task ahead, while the company's creditor repayment schedule, a combination of bond maturities and amortising reserve-based lending, doesn't exactly allow it much wiggle room to complete its mission.

"Success requires the successful turnaround of recent production declines and the continued support of a varied group of creditors," said Canaccord.

"Given the scale of the total debt outstanding (circa $3.3bn), the sensible (though not risk-free) long-term development plan, and the improved oil prices, we would expect widespread creditor support. However, the cost of that continued backing may be significant."

Despite the downgrade, the Canadian bank thinks Tullow's plan makes sense but again stated the task was "large" and highlighted that its degree of success remained uncertain.

Furthermore, Canaccord stated that initial progress was likely to be "slow", with in-field activities starting in mid-2021 and only delivering an operating cashflow impact from 2022 and significant balance sheet benefits from 2023.

Berenberg has upgraded SSP Group to 'buy' on "compelling" longer-term growth opportunities, despite the near-term risks.

The bank, which initiated coverage last December with a 'hold' rating, conceded that the travel food group continued to face "significant headwinds in the near term". SSP, which owns Upper Crust and Ritazza, among other brands, operates food and drink outlets in airports and other travel hubs worldwide.

Berenberg said: "In the period between our last note and now, the near-term outlook has deteriorated further, with multiple variant strains of the Covid-19 virus prompting governments, including the UK, to consider implementing tighter border control alongside further lockdown restrictions."

But despite the near-term risks, the bank, which also said an equity raise remained feasible, concluded: "This does not change the fact that it remains a well-run company with compelling growth opportunities."

"With the shares now trading close to 300p, and at a discount to historical PE, we believe the recent weakness provides an opportunity to own what is ultimately a quality company with strong medium-term growth characteristics."

Barclays has downgraded Unite Group on the back of the student accommodation provider’s ongoing exposure to the Covid-19 pandemic.

The bank, which cut its rating to 'underweight' from 'overweight', also reduced its target price for the shares by 22% to 850.0p.

It said there were four key reasons behind the rating shift.

"The drivers of the change are: assumed negative news flow in the near term; our expectation of more negative earnings per share impact in the 2021 full year than currently assumed by the market; deferred total accounting returns, which we do not think are reflected in the group’s premium rating (18% premium to full-year 2021 net asset value versus our coverage average around 14% discount); and an increase in our discount rate," said the analysts, who put their earnings per share forecasts 19% below consensus.

Analysts at Deutsche Bank raised their target price on Polypipe from 561.0p to 602.0p on Wednesday after the group raised 2020 underlying earnings guidance once again.

Deutsche highlighted that Polypipe's move came as the ink was "barely dry" on its positive December update and had led it to move its full-year underlying earnings forecasts to £42.0m from £40.0m.

The German bank also acknowledged Polypipe's bolt-on acquisition of Nu-Heat, an underfloor heating specialist based in Devon, and raised its 2021 and 2022 underlying earnings estimates by roughly 7%.

"We see recent share price weakness as an excellent opportunity for those seeking exposure to a company with a strong track record," said Deutsche, which also reiterated its 'buy' rating on the stock.

Redrow's first-half results will help the company’s shares narrow the gap with the rest of the UK housebuilders, JP Morgan said.

The company underperformed its peers in 2020 and so far in 2021 leaving it trading at a 30% discount by price to tangible net asset value, JP Morgan said. This is despite a return profile similar to the rest of the sector.

Results due on 10 February will be solid and the dividend will be reinstated, the bank said. JP Morgan predicted revenue growth of 21% to £1.05bn, pre-tax profit of £170.0m and a gross margin of almost 21%.

JP Morgan analyst Rajesh Patki forecast an interim dividend of 5p a share. He kept his 'overweight' rating on the shares with a price target of 600p – 12% more than the price before Patki published his note.

"We expect H1 results on Feb 10 to be a positive catalyst (solid results with reinstatement of dividend), resulting in narrowing gap vs. the sector," Patki wrote.