Broker tips: Rightmove, Burberry
Jefferies upgraded Rightmove on Monday to 'hold' from 'underperform' and lifted its price target on the stock to 720.0p from 450.0p as it said an offer was "probable" after Australia's REA Group confirmed it was considering a possible cash and share offer for the property portal.
Jefferies said the target price increase was based on a 30% premium to the undisturbed Rightmove share price as it stated the industrial and strategic logic looked limited but upon inspection, the financial logic of an acquisition was "compelling"., noting that REA's highly rated equity and unlevered balance sheet were the cornerstones of free cash flow per share accretion.
"Our merger analysis suggests that an acquisition of Rightmove is accretive to FY Jun-26 (the first full-year post completion) free cash flow per share up to an offer price of over 900p (assuming cash funding of A$3.5bn for pro-forma net debt / EBITDA of 2x)," it said. "The actual level of an offer will be capped by the need for the acquisition narrative to be focused on this accretion alongside margin/FCF conversion expansion, given Rightmove drags group growth and adds earnings risk (from the CoStar threat in the UK, something REA will probably seek to exploit through negotiations)."
Jefferies said that given its circa 60% controlling stake and ambitions to increase capital deployed in property platforms, News Corp - the majority owner of REA - can drive a transaction to completion.
"A 30% premium gives REA accretion and equates to 19x versus peers at circa 15x, with Rightmove standalone facing risks," the bank said. "Rightmove has the lowest growth and highest earnings risk of any name in EU online classifieds. For this reason, and others, we see the probability of counter bidders emerging as relatively low."
Luxury brand Burberry slumped on Monday as Barclays downgraded its stance on the stock to 'underweight' from 'equalweight' on structural concerns related to China.
Barclays analysts said that having spent two weeks travelling across Greater China, where they met over 60 industry stakeholders, they have returned "incrementally more cautious on the sector, as China now looks weaker for longer on structural issues". The bank said the macro environment deteriorated further in the summer and there is now a clear view that the Chinese weakness was structural and not just cyclical.
"On luxury goods, this translates into negative summer sales in Mainland China (up to circa 50% decline) and to clients being more and more selective."
Barclays said that in this "very polarised environment" brands under transition are more at risk, hence the downgrades. Overall, it now expects the luxury goods sector to grow by around 4% in 2025, down from a forecast of 7% previously, as it turns more prudent.
The bank said that despite already being one of the worst-performing names in its space, it still sees downside for Burberry as it has concerns about the company’s ability to remain a high-end luxury brand in line with its "coverage considering its lack of disciplined full-price strategy".
"Burberry looks likely to turn loss-making for the first time in H1-25 and considering that we expect the environment to remain tough next year, it could be difficult to see margin recovery in the short term," it said, as it slashed its price target on the stock to 540.0p from 820.0p.