Broker tips: Greencore, Sage, HSBC
Shares of Irish convenience food group Greencore slumped on Thursday as Jefferies downgraded the stock to ‘hold’ from ‘buy’ and slashed the price target to 165p from 235p.
The bank pointed to weak sandwich market data and said it is now more than 30% below consensus on Greencore’s FY20. This is "still too optimistic for an operationally-geared business, seeing big negative sales impacts," it said.
"With the shares now more than 50% above their post-Covid trough (but still 30% below pre-Covid levels) we move to the sidelines, ahead of the first-half results on 19 May."
Jefferies said Greencore has the leadership and balance sheet to come through this but "a period of uncertainty beckons".
When it downgraded estimates in March to account for the Covid-19 outbreak, it expected a short, sharp, shock that the balance sheet would be big enough to take.
"Now, with more insight post-lockdown, we anticipate a deeper and longer shock - one that the balance sheet is still big enough to take, but which is likely to require a more fundamental re-positioning and adjustment of expectations"
Analysts at Canaccord Genuity lowered software and services firm Sage from 'buy' to 'hold' on Thursday, stating the group would now have to navigate some "choppy water".
Canaccord said it made the move on valuation grounds and kept its 710p target price unchanged, even though it nudged up its 2020 earnings per share estimates by 3%.
The Canadian broker acknowledged that Sage beat first-half revenue and adjusted operating profits expectations by 2% - although the analysts pointed out that the period had not been impacted by Covid-19.
"However, and somewhat reassuringly, management provided a fairly detailed April insight as to the health of Sage's sizeable SME client base, but sensibly cautioned that this is based on only one month of empirical evidence," said Canaccord.
On that, Sage said it had only seen a "slight" churn in small business customers in April and no discernible impact on medium-size customers.
Canaccord also highlighted that Sage's margin guidance was "unsurprisingly unspecific" at this stage, other than noting that innovation had to be balanced with the current situation and advising that variable cost controls had and would continue to be implemented to reach a "financially balanced margin for FY20".
Berenberg upped its stance on shares of HSBC to ‘hold’ from ‘sell’ on Thursday as it said risks are now more balanced.
Berenberg noted that its downgrade of the stock to ‘sell’ in November did not foresee the current global pandemic.
"We believe risks from loan losses are material, but manageable, and that near-term earnings headwinds may be exacerbated by the upfront cost of further actions to reduce expenses, which we believe are necessary," said the German bank.
"However, while HSBC remains far from cheap, its 35% discount to tangible book value is comparable to historical troughs and better reflects our FY 2022E return on tangible equity of 6.7%. As a result, we believe risks to HSBC's share price are now more balanced."
Berenberg also pointed to HSBC’s "favourable" footprint in faster-growing markets, which it said distinguishes the bank from many peers.
"Given this, and perceptions that these markets may recover from COVID-19 sooner than developed markets, we are mindful of the potential for HSBC to outperform peers in the short term. We believe HSBC may struggle to benefit from these trends, but that such perceptions may limit downside."
Berenberg cut its price target on the stock to 390p from 430p, largely reflecting lower earnings expectations.