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Broker tips: Hikma Pharmaceuticals, 888 Holdings, Barclays, Lloyds

By Iain Gilbert

RBC Capital Markets initiated coverage of Hikma Pharmaceuticals on Tuesday at ‘outperform’ with a 1,750.0p price target.
The Canadian bank noted that Hikma shares had dropped 31% year-to-date, largely on deteriorating conditions for the generics unit.

However, RBC said the larger branded and injectables divisions were performing well and should deliver high-single-digit growth in the medium term.

“Looking to 2023, we believe the generics division has sufficient product launch momentum to return to growth, while Hikma is set to appoint a new CEO, removing another point of uncertainty,” it said.

“This should drive a re-rating of Hikma’s 9.7x forward price-to-earnings to at least 10.4x, as suggested by our sum-of-the-parts.”

Analysts at Canaccord Genuity maintained their ‘buy’ rating on bookmaker 888 Holdings but lowered their target price on the stock from 355.0p to 295.0p on Tuesday, stating high leverage was holding back its valuation.

Canaccord Genuity noted that 888’s recent Capital Market Day highlighted details of its updated strategic plan following the group’s completion of the William Hill International acquisition, along with key financial targets for 2025.

While 888 also announced an acceleration and increase in anticipated cost synergies, with £150.0m of pre-tax synergies now targeted compared to £100.0m previously, Canaccord stated that expectations of “tougher near-term market conditions” as a result of macro and regulatory pressures had “more than offset” most of the increased synergy expectations in the short term.

“The group’s primary near-term focus remains deleveraging given the high level of predominantly floating debt,” highlighted Canaccord. “Execution of the strategy and delivery of the targeted synergies are now key if the market is to believe the group will be able to reduce leverage to the target of less than 3.5x by 2025.”

“888 trades on 6.1x CY23E EV/EBITDA which we believe represents attractive value given the scale and positioning in large regulated European markets and strong proprietary tech platforms. That said, high leverage is holding back the valuation, in our view, and needs to reduce. Our SOTP-derived target price reduces to 295.0p (from 355.0p) reflecting updated forecast assumptions and slightly moderated component target multiples to reflect the challenging near-term demand outlook.”

JPMorgan Cazenove rejigged its ratings on UK and European bank stocks on Tuesday as it turned more cautious on the sector relative to consensus, arguing that slower economic growth will weigh on sentiment.

“We continue with our relatively cautious view on European banks trading at 6.9x P/E, 0.8x TBV for 11.6% return on tangible equity in 2024E,” it said.

“With our house view of a recession, JPMe provisions 13% above consensus expectations 2023-24E and historically banks underperforming when provisions increase and outperforming once provisions peak, we remain cautious.

“Our base case valuation is not expensive at 6.9x P/E 2024E; however, in our Stress scenario, we see the sector trading at average valuation of 12.7x P/E i.e. risk-reward is not as attractive assuming historic PE of 9x, in our view.”

As a result, JPM upgraded Barclays to ‘overweight’ from ‘neutral’ and lifted the price target to 220.0p from 180.0p, saying it was its new “top pick” as far as UK banks were concerned. It also downgraded Lloyds to ‘neutral’ from ‘overweight’

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