Citi downgraded Redrow on Monday to ‘neutral’ from ‘buy’ as it said the risk/reward now looks more balanced at the current valuation.
“Although a modest normalisation in mortgage rates should reduce the risk of a steep house price decline, we believe the elevated rate environment still drives materially lower demand and site absorption impacting the trajectory of the outlet pipeline on a two to three-year view,” it said.
“In addition, the softer trends noted in recent trading point to a higher risk of cancellations and incentives across the home mover regional markets, which may have been the biggest beneficiary of the strong market dynamics since the pandemic and represent a core part of the group’s exposure.”
Citi, which has a 477.0p target price on the stock, said it also believes the recent investment in divisional growth in Crawley hinders scope for significant overhead optimisation in the near term if market conditions worsen from here.
Investec cut its rating on Close Brothers from ‘hold’ to ‘sell’ on Monday, after a spike in the merchant bank’s share price.
Investec, which has a 1,025.0p target price on the stock, said that after a four-week 26% rally, Close Brothers’ shares were trading at 1.2 times 2023 estimated full-year tangible net asset value, “which for a UK bank rather feels like a price-to-NAV multiple from a bygone era”.
Analyst Ian Gordon said: “Ahead of Close Brothers’ first quarter [trading update], due Thursday, we don’t have any particular new concerns: we continue to expect slowing loan growth and slightly higher impairments within the dominant banking division to act as a drag to group profitability/returns.
“Close Brothers’ return on tangible equity was an ‘ordinary’ 12% in 2022, which will likely decline through 2023-2025.”
Gordon added that “in essence, this is a straight-forward valuation call. We believe Close Brothers is now a little too expensive on an absolute basis, with significantly bitter value available elsewhere in the sector.”
Analysts at Canaccord Genuity raised their target price on software firm Kainos from 1,350.0p to 1,525.0p on Monday, stating the group was “not slowing down”.
Canaccord Genuity, which has a ‘buy’ rating on the stock, noted that following Kainos’ “very strong” trading performance, flagged during its September update, reported sales rose 26% in the first half to £180.0m.
As a result, Canaccord raised its sales estimates by 5%, with the implied 19% year-on-year growth in the second half “well underpinned by backlog”.
“Our adj. EPS estimates for the current financial year are upgraded by 3%. We have also trimmed our FY25E free cash flow and net cash estimates by ~£16m to account for the planned new headquarters,” said the Canadian bank.
“Our thesis remains unchanged – after digesting post-COVID cost and margin headwinds in FY22, Kainos is now firmly back on a double-digit EPS growth path. In a bull case scenario where we assume the company continues on the current trajectory (+19% revenue CAGR) we see three-year bull case upside potential to £19/share (FY26E EPS of 76p @ 25x P/E).”
Analysts at Shore Capital Markets upgraded publishing firm Informa from ‘hold’ to ‘buy’ on Monday following the group’s “strong” trading update.
Shore Capital, which also reiterated its 553.0p target price on the stock, made the move after Informa published “an upbeat trading statement” covering the ten-month period to the end of October.
“This morning’s release indicates revenue growth across continuing businesses of 41% (excluding currency benefits reflecting outperformance of live and on-demand events across most markets and counting growth in academic publishing,” said Shore Cap.
At the segmental level, Shore Cap noted that the largest part of Informer’s business, its business-to-business markets, recorded roughly 65% year-on-year revenue growth throughout the period despite Covid-19 related restrictions in China.
Shore Cap also highlighted that Informa had raised its full-year revenue and adjusted operating profits guidance by £100.0m and £15.0m to £2.30bn-2.35bn and £490.0m-505.0m, respectively.
“The group’s stock is trading on FY23F and FY24F P/E, EV/EBITDA and DY ratios of 15.8x, 10.5x and 2.3% and 13.1x, 9.1x and 2.7, respectively, which seems relatively undemanding following recent weakness,” said Shore Cap. On that basis and given the positive tone of this morning’s update, strengthening upgrade momentum, a return to dividend payments and further support from share buy-backs, we have decided to move out recommendation from ‘hold’ to ‘buy’.”
