Broker tips: Vodafone, Berkeley Group, Halma
Analysts at Berenberg trimmed their target price for Vodafone's shares but reiterated their 'buy' recommendation, telling clients they spied 'greenshoots' in Italy and Spain and scope for a reduction in the telco carrier's leverage.
On the former, the German broker estimated that Vodafone would be able to return to sub 1% growth in services revenues by its third financial quarter, which was six months away, and to roughly 1.0% over the course of the following year.
For that to materialise, all that was needed was a moderation of declines in Italy and Spain, although there were some risks, Berenberg said.
On leverage, once the purchase of Liberty Media's asstes completed, Vodafone's net debt-to-earnings before interest, taxes, depreciation and amortisation would rise to 2.9 times, or 3.1 times if one excluded the equity credit for the mandatory convertible.
But the sale of equity stakes and towers could drive net debt/EBITDA by 0.3 to 0.4, which combined with the recent cut to the payout and ongoing growth in EBITDA - on the back of synergies from Liberty Global assets - might see proforma net debt/EBITDA reduced to the low end of 2.5-3.0 times in two years and to 2.0-2.5 times in three years' time.
Canaccord Genuity has reiterated its backing of housebuilder Berkeley Group, despite trimming its price target.
On Wednesday, Berkeley reported a 21% decline in full-year pre-tax profits to £775.2m, while earnings per share fell 18% to 481.1p.
The company had already warned that the numbers would be weaker in 2019, however, after profits peaked in 2018, and the fall was not as large as expected. Net cash was also stronger than anticipated, at £975m.
Berkeley also told investors that it was increasing building outside of London, its traditional focus, because of the ongoing political and economic uncertainty weighing down the capital’s housing market.
In a note published following the results, Canaccord said: “Berkeley has once again beaten expectations as it builds its strong forward sales position in stronger markets. Its profit delivery over the last three years has been truly remarkable and the cumulative pre-tax profit over that period is stronger than that delivered in the ten years prior to it. As has been anticipated, margins, profits and returns are expected to continue to normalise.
“If market conditions hold up, we expect the group to deliver a strong profit performance, supported by its strong land bank, balance sheet and forward sales position.
“If the market sees a share step down, which feeds through to lower land prices, the group is very well position to avoid itself of the opportunities that we would expect to emerge in the land market.”
Halma got a boost on Thursday as UBS upgraded its stance on the shares to 'neutral' from 'sell', upping the price target to 2,060p from 945p as it pointed to improving end market signals and M&A growth.
"Our upgrade is driven by 1) improving end-market signals resulting in increased organic growth to 7% from 6%, and 2) M&A growth of 4% (in-line with LTA) from a 0% scenario."
The bank said that with the share price up around 40% year-to-date, short-term risks are skewed to the downside at current levels, but fairly reflecting the long-term growth potential. UBS said the stock is currently pricing 8% implied long-term growth.