Broker tips: Bunzl, AB Foods, Flutter

27th Aug 2024 16:02

(Sharecast News) - Bunzl shares surged to an all-time high on Tuesday after a stronger-than-expected set of half-year results and a new share buyback programme, but that wasn't enough to change Jefferies' negative view on the stock.

However, Jefferies reiterated an 'underperform' rating and 2,600p target price for the shares, which suggests a 25% drop in the stock from Tuesday's levels.

The distribution and outsourcing company announced that adjusted diluted earnings per share rose to 90.2p in the six months to 30 June, up from 87.6p previously and around 2% ahead of the consensus estimate of 88.3p, Revenues of £5.71bn were also ahead of forecasts of £5.69bn, albeit down 3.3% year-on-year. However, the 4.9% decline in organic adjusted revenue was more or less in line with company guidance, Jefferies said.

Meanwhile, the broker highlighted that the bottom-line beat was bolstered by a strong performance in the Rest of World region, where EBITDA came in at £73m compared with its £67.8m forecast, though results in the larger Europe and the UK and Ireland regions were still worse than expected. EBITDA in Europe and UK and Ireland were £106.7m and £52.6m, below the broker's forecasts of £110.8m and £54.3m respectively.

Associated British Foods slumped on Tuesday as Deutsche Bank downgraded its rating on shares of the Primark owner to 'sell' from 'hold' and cut its price target on the stock to 2,190.0p from 2,290.0p.

The bank said it was taking a more cautious view on the shares, with AB Foods' profit recovery phase having come to an end.

DB said the margin recovery story at Primark has played out given a lack of like-for-like leverage and increased investment. Meanwhile, profitability in the sugar division is set to fall and the grocery business will give up some of its margin gains.

Analysts at Berenberg raised their target price on bookmaker Flutter from 18,600.0p to 18,800.0p on Tuesday following the group's "exceptional" second-quarter results.

Berenberg said Flutter delivered a "somewhat flawless" Q2 performance, with underlying momentum remaining solid across the business and upgrades to both the US and ex-US business.

The German bank also noted that as it looks ahead, Flutter's "scale, quality and clear outperformance of the market" should all continue to work in it favour, leading it retain its 'buy' rating on the stock.

"We value Flutter using a sum-of-the-parts model which yields a value per share of 18,800.0p. On a headline price-to-earnings basis, Flutter trades on 34.6 times for a solid 37.8% earnings per share compound annual growth rate," said Berenberg.