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Broker tips: AJ Bell, 4imprint, Kingfisher

By Iain Gilbert

AJ Bell surged on Friday after Jefferies upgraded its shares to ‘buy’ from ‘hold’ and lifted its price target to 450.0p from 290.0p, citing higher forecasts and confidence in the company’s business model after results.
“Having previously said much of the benefit of higher rates would go to customers, management’s 15% revenue margin guidance uplift is material,” said Jefferies.

“We were already confident in the business model and move to buy, having upgraded to hold two months ago, when the price-to-earnings multiple troughed at 21x.”

Jefferies also noted that the company expects to achieve a pre-tax profit margin of around 37.5%, up 2 percentage points year-on-year.

“We take confidence from both platforms achieving positive net flows in a tough environment,” the bank said. “Although uncertainties remain, AJB has demonstrated the resilience of its business model and we think its strategy will succeed.”

Analysts at Berenberg upgraded media firm 4imprint from ‘hold’ to ‘buy’ on Friday, stating it was “difficult to argue with momentum”.

Berenberg said it was “cautious” about 4imprint throughout much of 2022 as it felt supply chain challenges would “continue to prevent a recovery in gross margin expansion”, or at least what it saw as being required to offset rising operating costs.

However, while the analysts said gross margins remained “significantly lower” than pre-Covid-19 levels, it also said this had been “more than offset” by stronger sales growth, better cost control, and better returns in marketing spend.

“In short, the company has proven that operational leverage can kick in. We increase our estimates,” said Berenberg, which also hiked its target price on the stock from 2,700.0p to 4,800.0p.

The German bank also noted that its new estimates were predicated on a higher return on marketing spend being sustained, which it acknowledged “does carry some risk”, it also said it simply “cannot ignore” the stock’s short-term scope for outperformance.

Analysts at Deutsche Bank slightly lowered their target price on home improvement retailer Kingfisher from 280.0p to 275.0p on Friday, stating the stock was “swimming against the tide”.

Deutsche Bank said sales trends had held up better than expected for Kingfisher, both in the UK and France – especially given the reversal of Covid trends.

However, DB also said the pressure on disposable income from inflation and the slowdown in housing transactions was still likely to weigh on the sales outlook for the fourth quarter of 2022 and into 2024.

“The consensus view is that Kingfisher profitability will not be able to stand up against this tide but we believe that the current valuation already reflects the risk of a sales slowdown and management is focussing on cost control whilst investing for future growth,” said DB.

The German bank also noted that the 2024 trading year will not be “a strong year” for UK retailers, but said its view was that home improvement will prove to be “more resilient” than investors expect.

“Kingfisher has the benefit of geographic diversity and a strong balance sheet,” added DB, which reiterated its ‘buy’ rating on the stock.

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