Broker tips: Informa, RHI Magnesita, Britvic, Johnson Matthey

UBS downgraded its stance on business intelligence and exhibitions group Informa on Wednesday to ‘sell’ from ‘neutral’, saying the travel recovery was likely to be slower than the market expects and that it anticipates seeing material short-term earnings downgrades.
The bank said its revised FY22 EBIT estimate was 16% below consensus despite the shares trading at 16x estimated 2023 price-to-earnings, a premium of around 20% to the historical average.

UBS noted that around 33% of Informa’s event revenue was from international corporate travel in 2019. It said consensus expectations imply a recovery in international revenues to approximately 60% of 2019 levels in 2022.

However, based on a variety of data points, the bank branded this to be too optimistic and saw the level at around 47%. In addition, UBS said consensus group margin expectations for 2022 did not fully reflect around £100.0m of fixed costs that it expects Informa to add in 2022 as it scales hiring to run a full schedule of events and starts to pay bonuses.

UBS pointed out that Informa’s upcoming trading statement could be “a catalyst for downgrades” if it guides on the drop-through rate for incremental event revenues in 2022, which it believes will be only around 40% versus consensus 57%.

RHI Magnesita tumbled on Wednesday after RBC Capital Markets downgraded the shares to ‘sector perform’ from ‘outperform’ and cut the price target to 3,700.0p from 4,750.0p.

RBC said RHIM remains one of the cheapest stocks in its coverage and it continues to see attractions in its valuation.

“However, with inflationary pressures likely to persist in H2 and into H1 2022 we see increased uncertainty in its earnings progression versus our coverage and therefore downgrade.”

HSBC upgraded shares of drinks maker Britvic to ‘buy’ from ‘hold’ on Wednesday and lifted the price target to 1,050.0p from 900.0p on a better outlook.

The bank stated Britvic’s market share in the UK has improved visibly in the last couple of years, both in carbonates and concentrates. Meanwhile, Brazil is on a growth trajectory and performance in the rest of the world benefits from the restructuring of low-margin businesses.

HSBC said that prior to the pandemic, it was expecting 2020 to deliver a visible improvement in both top-line growth and margins given the improvement in operating capabilities achieved with the end of the Business Capability Programme.

“As we slowly return to normality, recovery of the on-trade in Great Britain and Ireland, and the restructuring of low margin businesses in ROW should visibly benefit the group P&L starting in 2H21,” said the analysts.

HSBC added that it remains concerned about cost pressures coming from disruptions in the supply chain in the UK and abroad, but Britvic’s simplified business and upgraded operations should enable the group to offset – at least in part – this pressure, leaving the balance to recover through price architecture.

Analysts at Berenberg lowered their target price on diversified chemicals group Johnson Matthey from 3,800.0p to 3,600.0p on Wednesday ahead of the firm’s interim results next month.

While Berenberg stated Johnson Matthey was on “the path to growth” over the long-term, it added that the stock’s valuation had “not yet caught up”.

As far as its cuts to JMAT’s price target went, Berenberg said declines in rhodium and palladium prices were responsible for the bulk of the reductions to its forecasts, with some related to autocatalyst volumes owing to the impact of semiconductor shortages.

On the potential market positioning of the company’s cathode material enhanced lithium nickel oxide batteries, Berenberg believes that JMAT’s eLNO technology can operate optimally at higher nominal voltages than today’s cathodes, which lends itself to use in more temperature resistant, semi-solid electrolytes that may run at higher voltages.

However, the German bank, which stood by its ‘buy’ rating on JMAT, noted that a drawback of the firm’s technology appears to be “the high capex intensity”, but it also acknowledged that this should fall by the mid-2020s, by which stage its process technology collaboration with Nano One Materials may bear fruit.

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