Broker tips: Bunzl, Asos, BT

Analysts at RBC Capital Markets raised their target price on distribution company Bunzl from 2,270.0p to 2,450.0p on Monday following the firm’s “solid” first-half earnings.

RBC said it opted to update its earnings per share estimates in order to better capture recent mergers and acquisitions, foreign exchange movements and “more resilient” underlying second-half revenue assumptions.

As a result, its earnings per share estimates rose by 7.5% for 2021 and 2.5% for 2022, bringing the Canadian bank more aligned with consensus estimates.

However, RBC also retained its ‘sector perform’ rating on Bunzl, reflecting longer-term concerns around structural margin pressures, constraints to M&A-driven growth and limited disclosure, set against an “undemanding valuation” and “relatively resilient” earnings and cash flow profile.

“Bunzl trades on 18x P/E against our revised EPS estimates for both FY21E and FY22E and an EV/EBITA multiple of a little over 14x for both years which is undemanding in the context of the distribution subsector and wider Business Services sector,” said RBC’s analysts.

Analysts at Berenberg lowered their target price on online clothing retailer Asos from 6,700.0p to 6,500.0p on Monday ahead of the firm’s capital markets day next month.

Berenberg said with Asos’ first CMD since 2016 coming six weeks prior to the end of the calendar year, it believes that 2021 full-year numbers will be “well underpinned”.

The German bank stated that while it believes that there was upside risk to its 2022 revenue expectations, it opted to reduce its full-year adjusted underlying earnings margin forecast by 30 basis points to 4.5%, in part reflecting widely publicised freight rate increases and Brexit-related costs.

“Given the temporary nature of some of these headwinds, the changes to our outer-year margin forecasts are minor. Notably, even with our new margin forecasts, we still expect Asos to generate over £100.0m of FCFE in FY22,” said Berenberg.

The analysts also said they reckon that Asos’ CMD could provide “an attractive positive catalyst”, leading it to reiterate its ‘buy’ rating on the stock.

Analysts at Numis upgraded their recommendation on shares of BT Group from ‘sell’ to ‘reduce’ after the share price moved to just 14% above their 140.0p target price.

Nevertheless, Numis predicted that so-called AltNets such as VM02 were set to consolidate “sooner rather than later”, in order to gain scale, thus becoming a more meaningful threat to BT too.

“We believe BT remains materially overvalued, and that it is likely to be on the defensive for a long time,” they added.

Numis also noted that there was also the risk from VM02 wholesaling its wireline network and its proven ability to grow its network even as it was upgraded.

“BT is a tough investment no matter who runs or owns it.”

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