Broker tips: BT Group, Provident Financial, William Hill
Macquarie lifted its recommendation on shares of BT Group to 'outperform' for the first time ever, telling clients that investor caution around the prospects for the operator's future free cash flows had now overshot and that markets were overlooking the upside to be had from its EE unit.
In particular, markets were being too ngative on on FTTp, it said.
The Australian broker also touted BT's "unparalleled" position, with more total spectrum in the UK than any other European operator and the only vertically integrated end-to-end 5G network.
For fiscal years 2017/18 and 2018/19 Macquarie only lifted its earnings per share estimates by 1% each, but it forecast a recovery from 2019/20 onwards thanks to the combination of a superior wireless proposition and FTTp, which drove upwards EPS revisions of over 6%.
Macquarie also lifted its long-term forecast for free cash flows at EE to reflect the impact those two factors would have on 5G small cells.
BT's dividend had also been set at a realistic level, it said.
All of the above led the broker to raise its target price from 270p to 330p.
Analysts at JP Morgan slashed their target price on shares of Provident Financial but reiterated an 'overweight' stance, emphasising that recent negative issues impacting its Home Credit unit were 'operational' in nature and unrelated to credit quality.
That followed meetings with the company's management and Provident's call with analysts.
So while JP Morgan admitted that the update from the company on its transition to a new operating model in Home Credit was "clearly disappointing" they decided to stick to their forecast for a flat dividend in fiscal year 2017.
That put the shares at a dividend yield of 5.6%.
Nevertheless, the analysts did cut their estimates for the company's profits before tax in fiscal years 2017 and 2018 by roughly 15% abd 11%, respectively.
William Hill racked up healthy gains on Wednesday as Stifel said the US Supreme Court's decision to hear the bid by New Jersey to legalise sports betting in that state should be seen a small positive.
Stifel pointed out that the case is unlikely to be resolved until next year and said that while legislative change is not certain, it could allow sports betting at casinos and racetracks in New Jersey.
"There is obviously smaller potential in New Jersey than Nevada, where William Hill an EBIT of £14.3m last year with a 26% market share. One should also note that since online casino gaming was permitted in New Jersey, growth has been below expectations with limited profitability."
So while this is a welcome "step in the right direction", it will only be a game-changer if there is further legislative change allowing larger states to legalise online sports betting.
"The shares have shown weakness this week. We view this development as a small piece of good news but the shares remain overshadowed by the machine review in UK."