Broker tips: WPP, Ferrexpo, Persimmon
Analysts at Berenberg lowered their target price on media giant WPP on Friday from 1,230.0p to 915.0p and reiterated its 'hold' rating on the stock, stating it was "not yet time to buy".
Berenberg stated that while its new price target offered upside and it thinks agencies are generally oversold, it also noted that – on its new 2023 estimates, which were 7% below consensus – the stock was not yet at trough forward price-to-earnings multiples.
"Despite the fact that we do anticipate weaker trading for 2023, it is clear that the company has so far delivered a good performance in 2022. The message from the agencies has been consistent – they do not yet see any sign of the downturn that the market is now anticipating. We believe that slower recovery in certain costs like travel and in hiring (given the tight labour supply) could even drive modest upside surprise in the H1 margin. That being said, we do not change our underlying estimates for FY 2022, other than to reflect the latest FX situation. For Q2, we forecast organic growth of 6%, with an H1 headline PBIT margin (preassociates) of 11.7%," said the analysts.
Moreover, the German bank also thinks that WPP's lower net income to cash conversion means that, while the stocks trade at apparently similar P/E levels, on a free cash flow yield basis the stock was still "considerably more expensive" than French rival Publicis.
Barclays upgraded Ferrexpo on Friday to 'equalweight' from 'underweight', highlighting a cheap valuation.
In a note on European metals and mining, the bank said 2022 has been "the worst of times" for Ferrexpo, with the Ukraine war limiting logistics capacity to 50-75% of nameplate volumes and sending the company's cost base into uncharted territory due to reduced output and explosive growth in energy input costs.
The bank said it had cut its earnings forecasts "materially" for 2022-204, reflecting lower iron ore prices, lower production and higher unit costs.
However, Barclays said it was closing its long -running underweight on the stock and upgrading to reflect the fact an investor today under plausible assumptions for the next two years could receive more than 60% of market cap back in cash, leaving limited residual value for the business as it stands, which trades on normalised price-to-earnings ex-cash using long-term prices of less than 3x and 27% free cash flow yield.
Analysts at Liberum reiterated their 'buy' rating on housebuilder Persimmon on Friday, stating pricing and margins "should trump volume".
Liberum stated that while it can understand the market's "knee-jerk reaction" to Persimmon's reduced volume guidance, down around 10% year-on-year, it also thinks the bigger point has been missed.
The analysts said Persimmon's shares should be judged on the "resilience of demand" and "the sustainability of margins", where the group had better news, pointing to improving margins and accelerating selling prices.
Liberum, which stood by its 2,630.0p target price on the stock, said Persimmon remains one of its "key picks" in "a cheap sector", with its "high and sustainable dividend yield" being a key attraction.
"What's not to like about making the same level of profit using less units?," added Liberum.
"We have left our estimates unchanged for 2022E and 2023E as the negative impact of lower volume estimates is offset by better selling prices and margins. We continue to expect a fall in profit in 2023E as we forecast only 1% selling price inflation and 4% cost inflation – this is a call on the economy rather than Persimmon in particular."