Broker tips: BT, EasyJet, IAG, RyanAir, Unilever

by | Feb 15, 2022

Analysts at Berenberg hiked their target price on telecommunications giant BT Group from 200.0p to 225.0p on Tuesday, stating certain inflationary tailwinds were currently underappreciated.
Berenberg noted that roughly two-thirds of BT’s revenue was inflation-linked and said that when combined with ongoing cost transformation and the growing benefits of its investment in fibre, it believes this positions the firm to grow revenue, underlying earnings, adjusted earnings per share and normalised free cash flow in the 2022/23 trading year by 1%, 4%, 11%, and 23%, respectively.

The German bank, which reiterated its ‘buy’ rating on the stock, pointed out that the next two quarters, BT’s fourth-quarter results in May and its Q1 numbers in July, should strengthen investor faith in the stock’s investment case by demonstrating mid-single-digit EBITDA growth and showing that its top line had grown approximately 2% in the first quarter.

“BT trades on 19x EV/OpFCF and a 5% normalised EFCF yield for 2022/23E, versus telecoms incumbents on 16x and 7% respectively. However, as BT turns to growth on the back of its higher investment, we believe more attention will be given to metrics that smooth out investment, like P/E, on which BT trades at 10x (telecoms incumbents: 18x),” concluded the analysts.

Liberum said on Tuesday that it continues to favour easyJet, IAG and Ryanair in the airline space, and that it remains optimistic there will be a resumption in the relaxation of travel curbs.

The broker said in a note that the latest update of its ‘Travel Restrictions Index’ shows a pause in the easing of government measures.

“We do not expect this to last long, and remain optimistic that there will be a resumption in the relaxation of limitations on international travel as the Omicron wave passes,” it said, adding that airline capacity plans appear to mirror this assumption.

The broker said it still sees Easter – the start of the peak summer season – as being the key test for the industry.

“We remain hopeful that restrictions will be eased appreciably for travel at Easter, with sufficient advance warning to allow a degree of forward bookings with confidence,” it said. “If that is the case, we would expect strong pent-up demand to be evident.

Liberum said that in an environment that is still “uncertain and volatile”, even with a clear direction of travel, its focus remains on the higher quality groups.

“The long-term structural winners have seen accelerated gains in the aftermath of periods of industry turmoil. This supports our positive stances on easyJet and Ryanair. In the context of the network carriers, we see IAG as the structural winner, with an efficient cost base and a balance sheet unburdened by state aid.”

RBC Capital Markets upgraded consumer goods giant Unilever to ‘sector perform’ from ‘underperform’ on Tuesday, hiking its price target on the stock to 3,600.0p from 3,400.0p.

“Good managers require a combination of self-confidence, insecurity, humility and luck,” RBC said.

“Unilever has got the balance wrong, but there are signs that the stars are starting to align. What happens next is opaque, but the combination of share price underperformance, a chastened board/leadership team focusing on running what it has – rather than bemoaning what it doesn’t – and some interesting developments (Trian, the reorganisation) prompt us to upgrade.”

It was reported in January that activist investor Trian had built up a stake in Unilever. The move was first reported by the Financial Times, which said the stake size was unknown.

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