Broker tips: Aveva, Boohoo, City Pub Group
Shore Capital upgraded online fashion retailer Boohoo to 'buy' from 'hold' on Thursday following a 13% drop in the share price in the last three months.
Analyst Greg Lawless said the company is well positioned as a pure play retailer with its focus on fast fashion across its three brands - Boohoo, PrettyLittleThing (PLT) and Nasty Gal - and has a sizeable opportunity to harness the international growth of the business.
"We think next week’s interims may be a catalyst for investors to look again at the investment case of the group. With the shares down 13% over the last three months, we believe that on balance, the risk is more likely on the upside, and that the fair value of the shares is more likely to be 210p, than the 150p level."
Lawless attributed the 5% drop in the share price over the last month to concerns that the move to a new warehouse for PLT this summer might have caused some short-term availability issues. In addition, he said the profit warning from German online fashion group Zalando this week may have also caused some nervousness among investors in the e-commerce sector.
Lawless also commented on the company's appointment this week of former Primark executive John Lyttle as chief executive officer.
"Appointing an external CEO with proven international clothing credentials and a fresh pair of eyes on the operations of the fast-growing international clothing brand is a good thing," he said. He added that the share incentive scheme, which would see Lyttle pocket up to £50m if he meets certain growth targets, is a statement of intent of the ambitions of the group.
Barclays upgraded Aveva to 'overweight' from 'equalweight' on Thursday and lifted the price target to 3,150p from 2,800p following the company's capital markets day a day earlier.
The bank said the CMD and outline of financial targets gave it a framework for the Aveva investment case to move forward.
It argued that the fact Aveva was prepared to give medium-term ambitions for the first time shows the visibility the group now has over its strategy.
"Trading momentum remains solid, particularly in the heritage Aveva business, a 30% adjusted EBIT margin is an ambitious yet achievable target and, if the sales integration is truly successful, we see upside to the mid-single digit revenue guidance," it said.
In addition, it said Aveva is serious about structurally improving the quality of the heritage Schneider assets - a transition to rental contracting and increased use of third-party systems integration.
Barclays said the merger with Schneider Software provides the company with a compelling self-help opportunity to create revenue and cost synergies and expand its global presence.
"A prolonged period of end market weakness appears to have stabilised and we see potential for Aveva to return to double-digit earnings per share growth."
Analysts at Berenberg reiterated their 'buy' rating and upped their target price on City Pub Group on Thursday morning following the landlord's "solid set" of interim results.
Berenberg raised its target price on City Pub to 260p from its previous 210p marker, noting that it believed the best was yet to come for the predominately wet-led pubco.
"We continue to believe that on a multi-year view the company can deliver strong like-for-like growth, scale the business to at least 65 sites, and reap the rewards of operational gearing as that strategy progresses," the analysts said.
With the company's gross margin expanding by "an impressive 70bp" in the first half, the broker felt it likely that City Pub would continue to take advantage of its growing scale and buying power. Management anticipates that it will be operating more than 50 pubs by the midway point of next year.
Berenberg acknowledged that City Pub's EBITDA margin improvement was "more muted" at 10bp, due to the incremental public company listing costs. However, as those costs annualise from 2019 onwards, Berenberg feels that City Pub should achieve "more material further margin expansion" as it benefits from both additional gross margin improvement and operational gearing on its central costs.
In Berenberg's view, City Pub is "a unique asset" among the listed pub operators that will continue to become "materially bigger" year-on-year.