Broker tips: BT, Admiral, Victrex, Agronomics

21st Aug 2024 15:04

(Sharecast News) - JPMorgan has reiterated its 'outperform' rating and 290.0p target price on BT Group despite competition concerns hitting the stock following the announcement that Sky has signed a wholesale deal with CityFibre.

BT's share price dropped more than 6% on Tuesday to settle at 136.3p after competitor CityFibre announced a long-term broadband partnership with Sky, which will see the latter offer its broadband to people on CityFibre's nationwide full fibre network.

However, JPMorgan said the news shouldn't come as a surprise to BT shareholders. "There has long been speculation Sky would sign a deal with either VMO2 or CityFibre. We consider this a natural step as Sky looks to preserve its negotiating power and maintain strategic flexibility," said analyst Akhil Dattani.

Dattani pointed out that only 1.5m of CityFibre's total 3.8m-home footprint overlaps with BT's coverage at 15m homes, and that the hard-to-reach areas CityFibre is targeting are only expected to see "limited build from BT".

While the Sky deal will likely deal a blow to BT, the bulk of line losses were likely to come at the expense of Virgin Media O2 due to the areas in question, the analyst said.

RBC Capital Markets lifted its price target on Admiral on Wednesday to 3,550.0p from 3,400.0p and reiterated its 'outperform' rating on the stock.

It said Admiral was consolidating its market leadership in the UK motor space, noting that while the outlook for pricing remains uncertain, a step-up in expense leverage should provide more flexibility to grow while keeping margins at healthy levels.

"An improving trajectory outside UK motor adds to the group's earnings momentum, and we forecast a 19% earnings compound annual growth rate over 2024-26e. Increasing our estimates by circa 5% across forecast periods," said RBC.

Jefferies upgraded Victrex to 'hold' from 'underperform' but lowered its target price on the stock to 1,100.0p from 1,150.0p on Wednesday, "purely" on valuation grounds.

The bank pointed out that since it downgraded the shares to 'underperform' in January, the share price has declined 26% versus the wider UK Industrials sector up 6%. It said the stock was now trading at "noticeable discounts" to its UK chemicals peer group versus historic premiums.

"There is no change to our fundamental view - while the near-term backdrop remains challenging, and several more structural longer-term questions remain, we believe downside risk is adequately priced in," Jefferies said.

Looking forward, Jefferies said its cautious view is driven by a lack of demonstrable volume growth over the long term, and that while Victrex's EBITA margins continue to sit at the top end of its coverage, broader questions remain around whether a more structural pricing reset is needed.

"However, we note that potential upside from 'mega-programmes' remains compelling, once we begin to see real momentum here, and present the opportunity for volumes & returns to improve over the medium-term."

Analysts at Canaccord Genuity lowered their target price on agriculture investment business Agronomics from 20.0p to 17.5p on Wednesday after the group's latest net asset value update showed a modest reduction its NAV/share ratio.

However, Canaccord said this new announcement didn't change how it saw Agronomics and reiterated its 'buy' rating on the stock.

"We highlight that in the last year, the stock has traded at over 40% discount to NAV, and the discount was even more severe as of June 24 when, at a share price of 6.0p, the discount to NAV was 63%. In our view, this is excessive for several reasons," said Canaccord.

Firstly, the Canadian broker pointed out that more than 40% of NAV was "confirmed" by transactions carried out in the last 12 months, where Agronomics often did not even participate in a follow-up investment. Therefore, Canaccord considers them as genuine third-party valuations.

Secondly, despite some limited exceptions, Canaccord said Agronomics' portfolio was progressing, and despite the challenging venture capital sector, the investees successfully raised additional capital and/or progressed in their journey towards regulatory approval or, in some cases, progression in the construction of their first at-scale facility.