Analysts at Berenberg changed up their positions on Direct Line and Admiral Group on Monday after taking a fresh look at both insurers.
Berenberg stated Admiral was one of the “highest-quality names” in the European insurance sector and noted that after “a spectacular run” the shares had dropped roughly 20% since August.
As a result, Berenberg now thinks an opportunity has presented itself for investors to begin re-building a position in the name, leading it to upgrade the stock from ‘hold’ to ‘buy’ and increase its price target for its shares from 2,895.0p to 3,245.0p.
“While the shares are still at a premium to the pre-pandemic levels, we believe Admiral has warranted its re-rating and the detailed work we have done on reserve releases and profit commissions highlight that we believe the earnings risk is still to the upside going into 2022,” said the analysts.
Moving on the Direct Line, the German bank downgraded the stock to ‘hold’ from its previous ‘buy’ position and lowered its target price for the shares from 396.0p to 295.0p, but stated it still believes the Financial Conduct Authority’s review into general insurance pricing practices was likely to be a “manageable event” for the company.
However, Berenberg also reckons that, until there is “clear evidence of this”, which could be as late as its 2022 second-half results, Direct Line will continue to trade at low levels and be unlikely to attract new buyers.
Kepler Cheuvreux downgraded its stance on EasyJet on Monday to ‘reduce’ from ‘hold’ and slashed its price target on the stock to 460.0p from 605.0p.
“We consider deteriorating traffic trends coupled with slot requirements at European capacity-constrained airports to be increasingly likely during the current winter flight schedule,” it said. “In such a scenario, we consider EasyJet to be the most vulnerable company in our coverage.”
Kepler said it expects EasyJet to operate at least 50% of its pre-crisis capacities during the winter flight schedule in order to keep its portfolio of slots at capacity-constrained airports.
“With increasing number of infections, lockdowns being reintroduced in some countries, we see the risk EasyJet will have to incentivise demand and stimulate load factors with significant fare discounts,” it said.
Kepler also said it sees increasing political opposition to low-cost carriers in many of EasyJet’s main markets post-Covid.
Analysts at Canaccord Genuity raised their target price on software firm Kainos from 1,765.0p to 1,880.0p on Monday, pointing to continued growth momentum and normalising margins.
Canaccord said Kainos, which raised full-year revenue expectations in September, had shown that its “impressive run” of sector-leading double-digit growth had continued in its interim results, with organic sales up 32% year-on-year
Furthermore, the Canadian bank highlighted that backlog growth had accelerated to 38%, of which digital services was up 29% year-on-year, while workday services grew 39% and smart services shot up 67%
“This provides very good visibility on our raised 2H22 estimates, which now imply potentially conservative +21% yoy growth and 26% for the full year,” said Canaccord, which reiterated its ‘hold’ rating on the stock.
B&M European Value Retail was under the cosh on Monday after downgrades by both Goldman Sachs and RBC Capital Markets.
Goldman downgraded the shares to ‘sell’ from ‘neutral’ and cut its price target to 580.0p from 620.0p, stating that while it regards B&M as a best-in-class European discount format, the current disrupted supply chain and elevated input costs drive a flat earnings per share outlook for FY22-25.
“In the context of its current 18x price-to-earnings multiple, we expect the shares to underperform the sector over the next 12 month,” it said.
RBC Capital downgraded the stock to ‘underperform’ from ‘sector perform’ and reduced the price target to 575.0p from 600.0p, noting that B&M remains a well-managed retailer with a strong track record, but warning that it now sees more earnings momentum and valuation upside from some other stocks in the sector.
“Also, we think a recent fall in the GBP, along with higher input cost inflation, is likely to lead to higher discounting for B&M, in response to price rises. We think these pressures, along with a higher UK corporate tax rate in FY24 will result in much more pedestrian earnings growth over the next two years, following a near doubling of earnings over the last two years.”
