Broker tips: Asos, Tui, TransGlobe Energy
ASOS got a boost on Monday as Berenberg upgraded its stance on the shares to ‘buy’ from ‘hold’ and hiked the price target to 4,200 from 3,000p, saying the online fashion retailer is "out of the woods" and the current valuation is a "compelling" entry point.
The bank downgraded ASOS to ‘hold’ in July after losing faith in execution during an "annus horribilis" for the company.
However, it said in a note that performance over peak trading, which demonstrated the resilience of the new logistics infrastructure, together with its extensive conversations with the company, has restored its confidence.
Berenberg said the current valuation implies limited margin recovery for ASOS, with the market overlooking five key drivers of operating leverage. It pointed to "superior order economics; ii) supplier renegotiations; iii) shipping cost leverage from localised distribution centres, iv) warehouse efficiencies; and v) non-strategic cost savings".
It also said: "With the new infrastructure holding up well over peak trading and brand positioning back on track, together with a ramp-up in US marketing and a strengthening of the management team, we believe the recent reacceleration in revenue growth is sustainable (15-20%).
"We believe the 1.4m net new customers added over P1 2020 imply revenue growth of 15-22% is achievable in FY 2020 (we forecast 17%)."
Analysts at ShoreCap reiterated their 'buy' recommendation for shares of TUI Group, arguing that the purchase of Hapag Lloyd Cruises by TUI Cruises, its 50% joint-venture with Royal Carribean, demonstrated that the share price was failing to reflect the value of the company's cruise and hotel assets.
On 7 February, TUI Cruises had agreed to pay €1.2bn for Hapag Lloyd Cruises, TUI Group's wholly-owned luxury and expedition cruise brand on a cash and debt-free basis, in effect selling half of the unit to Royal Carribean.
ShoreCap said that TUI Cruises was set to be highly cash generative and that its dividend for the JV partners would not be impacted.
The net cash consideration of €700m for TUI Group including a €63.0m earn-out would strengthen its balance sheet and help accelerate its digital transformation.
Initially, the transaction would generate a roughly seven euro cent drag to TUI's earnings per share, but ShoreCap said that would narrow over the medium term thanks to the synergies from the operation and future ship launches.
Valuing the income accruing to TUI from its cruise operations post transaction at 10-11 times' would equate to 500p a share, with the firm's hotel assets arguably worth another 500p versus a then-current share price of 850p.
Analysts at Canaccord Genuity upped their target price on development and exploration firm TransGlobe Energy from 235p to 245p on Monday as a result of some increased Canadian production.
Canaccord said the success of TransGlobe's Cardium play in the South Harmattan area of Western Canada in late 2019 had provided "a significant milestone" in raising the profile of the group's assets in the country and enhancing the "second leg" of its story.
The Canadian broker also highlighted that TransGlobe's outlook for accelerating high-value production growth from the play was "very encouraging", though it noted that the firm was still "very early" in the operational expansion's roll-out in the area.
Turning their attention elsewhere, Canaccord said the Canadian news dovetailed well with the "strong performance" from the firm's mature producing assets in the Eastern Desert of Egypt.
"Production there averaged c.13.7 kbopd, an uplift of over 10% on 2018 levels and the average over the three previous years," said Canaccord.
"We see this as very good evidence that these licences in the Eastern Desert of Egypt - West Bakr, West Gharib, NW Gharib - do still offer running room for production growth."
Canaccord, which reiterated its 'buy' rating on the stock, also noted that TransGlobe was continuing discussions with EGPC in regard to consolidation, extension, and amendment of the Egyptian production sharing contracts - and was "confident" of a successful conclusion in the second-half of 2020.
"That would provide the foundation for longer-term development to fully realise the potential of the area."