Broker tips: Tate & Lyle, System1, easyJet

by | Jul 14, 2021

Analysts at Berenberg raised their target price on food and beverage ingredients supplier Tate & Lyle from 855.0p to 950.0p on Wednesday, stating the firm was now deserving of a valuation in line with its peers.
Berenberg opted to up its price target on the stock after Tate & Lyle announced its intention to sell a controlling 50% stake in its primary products business to KPS Capital Partners for £1.2bn.

As a result of the sale, Tate & Lyle will receive proceeds of roughly £900.0m and has plans for a subsequent £500.0m special dividend.

“In our view, this is the transaction investors have been waiting a decade for; we believe that it is a good deal for Tate & Lyle – with a supportive new partner – and the expectation of the deal was the reason we upgraded to ‘buy’ last month,” said Berenberg.

Over at Canaccord Genuity, analysts raised their target price on marketing research outfit System1 Group from 300.0p to 370.0p on Wednesday after the firm’s results came in ahead of expectations.

Canaccord stated that while there were no “major surprises” in System1’s full-year results, on an adjusted basis they were ahead of its expectations – with revenue 1% ahead at £22.8m and adjusted pre-tax profits of £3.1m being 4% ahead.

The Canadian bank said it values System1 based on prospective 12-month blended peer group multiples for price-to-earnings, enterprise value/sales and enterprise value/underlying earnings relative to its 2022 full-year estimates.

“While we have adopted a slightly broader peer group, we note the implied multiples are similar to our previous April 2021 analysis,” said Canaccord, which kept its ‘buy’ rating on the stock unchanged.

Davy cut its stance on easyJet on Wednesday to ‘neutral’ from ‘outperform’ as it took a look at low-cost carriers.

Davy noted that EU digital Covid Certificates were now in operation and Eurocontrol data suggested that intra-EU traffic was just 37% lower compared to 2019.

“Traffic may have reached an inflection point, but financial and cash-flow inflections are yet to come,” said the analysts.

As a result, Davy downgraded easyJet and slapped it with a price target of 850.0p as it noted that since the first quarter, the airline had been burning around £40.0m per week.

“While liquidity per 100 seats at the half-year was £5.2m (target: £2.6m), additional equity cannot be ruled out in the lean winter months after the CFO’s review,” it said.

Davy also forecast a FY2021 pre-tax loss of £1.13bn before a recovery to £195.0m in FY2022 and £505.0m in FY2023.

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