Broker tips: Boohoo, HSBC, Blue Prism

Liberum upgraded shares of fast fashion retailer Boohoo to ‘buy’ from ‘hold’ on Friday as it argued that the valuation deserves to recover.
The broker said its previous rating was based on the uncertain long-term financial and the reputational impact of the supply chain review.

Liberum, which has a 380.0p target price on the stock, said it’s clear from the three reports published so far by Sir Brian Leveson that Boohoo has taken the supply chain review very seriously and is going above and beyond to cover all aspects in the review.

“The company is not engaging in a one-time fix of the existing issues highlighted in the review by Alison Levitt QC, but is installing systems and processes that would ensure a continuous process of review and improvement,” it said.

“We are satisfied with the progress the company has made so far to fix its supply chain issues, as well as the plans shared for the future,” it said.

As a result, the broker reckons the current share price undervalues Boohoo as it should trade at a premium to the peer group given its strong profitable growth forecasts and “huge” market opportunity.

Analysts at JPMorgan upgraded banking giant HSBC from underweight to ‘neutral’ on Friday despite it having “notably underperformed” the European Banks sector over the past year.

JPMorgan said two significant challenges had weighed on HSBC’s investment case. Firstly, high sensitivity to short-end US and Hong Kong rates, leading to net interest income declines of 15% with limited cost offset and no benefit from steepening and secondly, the fact that its strong capital position had been outweighed by the Prudential Regulation Authority’s move to block already accrued dividends as well as limit capital return and buybacks.

“However, we see the tide turning on both fronts, with the Fed turning more hawkish and the PRA likely to ease capital return restrictions in H221. Looking ahead over the medium term, we believe that the risk to short rates is to the upside in key markets and dividend yields of c4-5% with buybacks on top should improve valuation support – hence, risk-reward is now more balanced relative to the sector,” said JPM, which also increased its price target for HSBC from 400.0p to 440.0p

Analysts at Berenberg reiterated their ‘hold’ rating on software firm Blue Prism on Friday but cautioned that concerns around the stock just kept compounding.

Berenberg stated that in its view, Blue Prism’s first-half results were “weak”, noting that while the headline figures were

already known and the company had shown progress on profitability, none of its concerns about sales trends, competition, costs and product had abated.

“In fact, they have increased,” said the analysts. “We reduce our FY21 revenue estimate and now forecast the company to be slightly below its current guidance.”

Bernberg said Blue Prism’s revised guidance pointed towards decelerating revenue growth, but with a clearer path towards cashflow breakeven and eventually profitability. The analysts admitted that a portion of this decelerating growth could be explained by Covid-19, but said it also raised questions about the RPA market, pricing, competition and Blue Prism’s commercial strategy.

The German bank, which kept its 1,100.0p target price on the stock in place, cautioned that while investors may be attracted by the company’s “relative valuation”, given the fundamentals, it believes they should look elsewhere.

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