Broker tips: Countryside Properties, Indivior, ASOS, DMGT
Goldman Sachs reinstated its coverage of Daily Mail and General Trust at 'sell' with a 674p price target on Monday, saying the recent rally had overlooked the business' skew to structural and cyclical headwinds.
Goldman Sachs said that while DMGT had outperformed the media sector by roughly 25% so far this year despite a weaker than expected performance in DMG Media, the business remained "highly skewed" to UK macro trends.
It said that DMGT's property information division was still driving negative earnings revisions and while GS welcomed management's recent actions to simplify the group's portfolio, via disposals in DMG Information and its stake in ZPG, the firm remained cautious given that The Daily Mail and Property Information still made up almost 60% of revenue.
Goldman Sachs also highlighted risks to DMGT's FY19-21 operating profit estimates for RMS given the company's predilection to follow a more modular roll-out approach.
"While DMGT clearly holds the leading market position in the segment, our conversations with industry participants suggest that competition has increased as technological barriers to entry have fallen," Goldman Sachs said.
The broker said the company-compiled consensus, which currently forecasts a 22% improvement in operating profit in FY19, may be "too optimistic".
GS said that DMGT was a "compelling candidate" for corporate simplification and that any reshaping of the existing business to improve growth and returns would likely see the broker become "more positive" on the stock.
"However, our assessment of progress to date is less encouraging, with the sale of higher-margin businesses in DMG Information and press reports of potential acquisitions within print and digital media."
Countryside Properties got a boost on Monday as Deutsche Bank initiated coverage of the housebuilder at 'buy' with a 426p price target.
"Countryside is the UK's foremost housebuilder specialising in large-scale regeneration partnerships," DB said.
"This partnership business we see as a key differentiator for the stock, providing more consistent over-the-cycle profitability profile, significantly higher return on capital employed, and strong positioning to government policy."
Last month, the company said it expected annual property sales to rise by 10-15% or more over the medium term as it announced trading in line with its expectations.
In the first 38 weeks of Countryside’s financial year, average weekly visitors to its sites rose 3% and the number of reservations per outlet was steady at 0.88 a week. House price inflation was 3% and the cost of building houses increased 3-4%.
Analysts at Jefferies and RBC Capital Markets reiterated their 'buy' rating on drugmaker Indivior as the company received a "major boost to sentiment" in the wake of a favourable US court decision in its case against rival Dr Reddy's.
The court issued a preliminary injunction against Dr Reddy's, restricting the firm from selling, marketing or importing a generic version of Indivior's Suboxone film, an opioid-addiction treatment.
RBC Capital referred to the case as "a rollercoaster".
The news comes just days after Indivior's stock dived by nearly a third after the firm issued a sales and profits when Dr Reddy's started selling its own version of the drug to patients before a restraining order could be imposed.
"We see this news as helping to protect its market-leading franchise but more importantly stop interference as it continues to launch what we perceive to be the best in class asset Sublocade," said RBC.
RBC felt the injunction would push generic challengers out of the market by four to six months given initial appeal timelines but, perhaps optimistically, by as much as 12-18 months.
"As long-term, we see Sublocade as the market-leading asset in a growing, high-profile, market," added RBC.
Jefferies downgraded its target price on Indivior to 545p from 630p, while RBC left its 550p target unchanged.
"For Indivior shareholders, recent events have been challenging but we would argue the reward is coming home," concluded RBC.
With Asos shares down 25% from highs earlier this year on various investor concerns, analysts at Citigroup said that this was an overreaction and upgraded its rating on the shares to 'buy'.
Since getting close to £78 in March, shares in the online clothes retailer have been dragged below £58 by worries about increased capex guidance, lower than expected sales growth, US sales tax and implications about the impact of GDPR.
"We think these concerns are overdone and see the current price as a compelling entry point for long-term growth opportunity," said Citi's Dan Homan.
As management will need to continually balance growth opportunities against profits as the AIM-listed company expands its operations outside of the UK, Homan said he and his colleagues believed the company "would benefit from raising finances and sacrificing near-term profit in order to grow more aggressively and capture a larger share of potentially substantial markets".
Estimates for the current year remain unchanged, but the analysts marginally cut their forecast for sales growth to 23% for 2019 and a 75 basis-point gross margin decline due to losing US import duty benefits, this results in a 1% reduction in profit before tax and sees the earning per share estimate drop to 115.6p from 116.5p.
Citi's target price, which is derived from a 10-year discounted cash flow analysis, remained at £70.