Outsourcer Bunzl rallied on Friday after Berenberg lifted its stance on the shares to ‘buy’ from ‘hold’, as it argued that the recent relative underperformance has run its course.
“Bunzl, described by the Financial Times as the most boring company in the FTSE 100, often gets overlooked by investors; but this is to neglect a well-run, attractively priced, acquisitive compounding business, where expectations are too cautious,” the bank said.
Berenberg noted that after a relatively strong performance from the shares following the March 2020 market trough, since November the re-opening trade has taken hold and investors have rotated out of – or bet against – the perceived 2020 winners.
“We think the recent relative underperformance of Bunzl has run its course. The shares are attractively valued and consensus estimates are conservative; we note the robustness of the group’s balance sheet (net debt/EBITDA will on our estimates head towards 1x by year-end); and think Bunzl is well placed to continue to compound shareholder value via M&A.”
The bank, which lifted its price target on the stock to 2,750.0p from 2,650.0p, said the reopening of economies should provide a boost to Bunzl’s retail and foodservice businesses, although it will mean reduced demand for Covid-related products that brought the company more than £1.3bn in revenue.
Goldman Sachs lifted its recommendation on shares of luxury fashion brand Burberry on Friday to ‘buy’ from ‘neutral’, pointing to a more attractive risk/reward profile.
The bank, which upped its price target to 2,475.0p from 2,135.0p, noted that Burberry has underperformed luxury peers materially – down 36% over the last 12 months and 44% over the last three years – as the brand has been undergoing significant change to elevate its positioning towards a more premium offer, adversely impacting volume.
“We think expectations are low for Burberry – our revised base case of 7% underlying sales growth per annum FY22-26 is conservative versus guidance (of high single digits medium term, using FY20 as the base year) and sees 17% upside to our fundamental discounted cash flow valuation (ex M&A component).”
GS said that in the event Burberry achieves its target, this would imply a DCF-based valuation nearer to 3,000.0p per share.
Analysts at Liberum raised their target price on industrial and electronics products distributor Electrocomponents from 1,170.0p to 1,270.0p on Friday, stating the group’s first-quarter performance was “outstanding and well ahead of peers”.
Electrocomponents delivered first-quarter like-for-like sales growth of 37% year-on-year, up 22% on a two-year view, materially ahead of Liberum’s “low double-digit” year-on-year expectations.
While Electrocomponents has seen lower fulfilment rates and extended lead times from suppliers into its distribution centres, Liberum noted there has so far been only a minimal impact on availability.
“We continue to see Electrocomponents as a business with a high-quality management team and a disruptive, digital business model that is well positioned to keep taking market share.”
Analysts at Citi stood by their ‘top pick’ rating on insurance giant Aviva on Friday, stating there was still significant upside to group’s valuation.
Citi said the key to its investment theme was the £4.0bn of capital returns that it had pencilled-in, an amount equal to a quarter of the company’s market capitalisation.
However, Citi highlighted that said returns appeared to already be priced in.
“Assuming the entire £4.0bn leads to a reduction in share count, an 11% 2023 [estimate free cash flow] yield suggests 14-18% relative valuation upside,” said the analysts.
Citi also pointed out that a successful deployment of excess capital over time could result in a further 11% of potential upside to Aviva’s valuation.
