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Broker tips: Schroders, EasyJet, Compass

RBC Capital Markets upgraded Schroders to ‘sector perform’ from ‘underperform’ on Wednesday, hiking the price target to 3,400.0p from 3,000.0p.
The Canadian bank said Schroders’ strategy to transition away from its core traditional active management products and instead focus on the structural growth areas of private assets, solutions and wealth management is a sensible long-term strategy.

“In the short term, a strong ESG offering and improving investor sentiment should stabilise outflows from traditional active products,” said RBC.

“With a valuation in line with the sector, and the likely lack of a near-term catalyst for the shares to underperform, we upgrade to sector perform.”

Liberum upgraded easyJet to ‘buy’ from ‘hold’ on Wednesday as it argued that share price weakness has created an “attractive entry point”.

The broker said that while short-term uncertainty over travel restrictions persists, the long-term opportunity is intact.

It said easyJet’s liquidity is sufficient to withstand further disruption through the winter.

Liberum cut its current year forecasts on more cautious capacity plans, but lifted its 2023 estimates on a better long-term capacity outlook. It also lowered its price target on the shares to 900.0p from 1,000.0p, reflecting the reduction in its short-term forecasts.

“We remain positive on the long-term recovery in air travel,” Liberum said. “We believe there is clear evidence of pent-up demand, with bookings surging whenever a relaxation of travel restrictions is announced.

Jefferies upgraded catering group Compass to ‘buy’, from ‘hold’ on Wednesday, arguing that the risk/reward scenario for the sector was now more favourable.

The bank said reopening uncertainty has propelled caterer shares back to post-Covid relative lows.

“However, balance sheets were de-risked last year and first-time outsourcing has emerged more rapidly than expected so industry revenue is likely to be bigger at next peak.”

Jefferies, which also lifted its price target on Compass to 1,660.0p from 1,440.0p, noted that the firm’s shares have underperformed the Stoxx 600 by almost 20% over the last three months and now sit close to lows reached in the immediate aftermath of the pandemic.

“Although the latest variants cloud recovery, developments have been positive: 1) de-risked balance sheets insulate from an uncertain trajectory; 2) first-time outsourcing by clients has accelerated; 3) according to our analysis of the reopening plans of the 100 largest US colleges/universities, 90-95% of students will attend in-person classes this Fall; 4) our proprietary US sports stadia footfall index has increased sharply over the past month.”

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