Broker tips: Burberry, Thor Explorations, Mattioli Woods, GSK

Goldman said it continues to like the long-term growth opportunity at Burberry, but stated it had been too optimistic on the pace of like-for-like acceleration and required levels of investment to support it, which delayed its margin expansion thesis.

"Our prior positive stance on the investment thesis at Burberry was based on new product driving an acceleration in LFL growth and improved store densities, which in turn drive margin expansion," it said. "Whilst management reiterated its £4.0bn revenue ambition in the trading update (12th January) we expect it will take longer than initially planned."

In addition, GS said the drop in profitability from prior expectations suggests greater investment was required to deliver the sales turnaround.

The bank also noted that since being added to the 'buy' list in July 2021, Burberry shares have underperformed the FTSE World Europe Index by 39% - down 34.1% versus the FTSE World Europe up 4.9%.

Analysts at Canaccord Genuity lowered their target price on mineral exploration company Thor Explorations from 35.0p to 30.0p on Monday following the group's fourth-quarter results.

Thor Exploration's latest set of quarterly figures showed gold production in line with prior expectations at 21,800 ounces, bringing full-year production to roughly 85,000 ounces, meeting the company's guidance. Additionally, head grades were higher than the prior quarter at 2.77 grams per tonne despite lower mined ore grades.

Berenberg said 2023 was expected to be "a difficult year" in the mine plan, but it also noted that production guidance of 95,000-100,000 ounces for 2024 had come in lower than previous estimates of approximately 105,000 ounces and all in sustaining cost guidance was higher than previous expectations of $880.0 per ounce at $1,150.0-$1,350 per ounce, prompting the adjustments in its earnings estimates and valuation.

"We note that with this year's more realistic figures, the company still trades on an FY24E EV/EBITDA of ~1x, and with a significantly lower debt repayment burden than that seen in 2022 (we expect ~US$18m in repayments this year)," said Berenberg, which reiterated its 'buy' rating on the stock.

"This sets the stage for a year where the company not only reaches a net cash position (CGe: 1H24), but we expect a significant share of the current market cap to be held in net cash by year-end (~40-50%)."

Analysts at Berenberg lowered their target price on wealth management company Mattioli Woods from 970.0p to 870.0p on Monday but acknowledged the group had delivered a "resilient performance" in a "challenging market".

Berenberg noted that Mattioli's interim trading update contained figures that were broadly in line with expectations. Although client assets fell slightly during the period, driven by negative market movements, revenues grew year-on-year as a result of an "elevated demand" for financial advice.

Looking forward, the German bank stated that while the market and economic environment "continues to remain uncertain", Mattioli's diversified business model provides resilience, in its view.

Berenberg, which said current market conditions were the reason for its price target move, maintained its 'buy' rating on the stock.

"Management expects demand for financial advice to continue to remain strong given the recent proposed changes to pension and tax rules, and current macroeconomic conditions. The business also points to some recent signs of improving market conditions, which, if these continue, would benefit its investment management businesses," said Berenberg.

"Mattioli also continues to work on the rollout of its pension banking proposition, which should involve sharing of interest income generated between clients and the group. On the M&A front, management highlights that its pipeline of potential bolt-on acquisitions remains robust."

Shore Capital has raised its target price and maintained a positive stance on biopharma giant GSK, saying that worries about the potential cost of Zantac litigation were unfairly weighing on the stock.

"We continue to view the current discount to peers as unwarranted and largely attributable to misguided assumptions on the potential cost of Zantac litigation. This has disproportionately overshadowed the improved and increasingly attractive growth story we believe GSK delivered in 2023," said Shore Capital analyst Sean Conroy.

GSK has already settled numerous lawsuits in the US that claimed that its discontinued heartburn drug Zantac caused cancer, and the majority of outstanding cases relate to filings within Delaware that cover roughly 80,000 plaintiffs.

"Pre-trial hearings on the admissibility of expert testimony are scheduled on 22-25 Jan and should serve as an important indicator as to whether GSK is likely to make further settlements in 2024," Conroy said.

However, he added: "As a reminder, the analogous Daubert hearings in the federal-level multi-district litigation ruled in favour of GSK (and other manufacturers) and resulted in the outright, robust dismissal of all MDL cases given the lack of credible scientific evidence."

Conroy said that a worst-case scenario, in which Zantaz litigation costs GSK a total of $30.0bn, is currently being reflected in the share price. "[We] highlight any further clarity could support a material rerating of share; we have updated our sensitivity analysis and believe there remains a compelling risk-reward profile ahead of further updates on Zantac," he said.

The broker has lifted its target price from 1,850.0p to 2,000.0p and kept a 'buy' rating.