Broker tips: Card Factory, Forterra, Ibstock, Coca-Cola HBC

4th Jul 2024 16:04

(Sharecast News) - Berenberg initiated coverage of Card Factory on Thursday with a 'buy' rating and 154.0p price target as it argued it was a "vastly improved proposition".

"Card Factory is a transformed business that is now leveraging its deep competitive moats to unlock growth from underexploited markets," the bank said. "It is the UK's largest specialist retailer of greeting cards and focuses on the value segment of the market. Its estate of 1,058 stores provides greater reach and scale than that of competitors."

Berenberg said Card Factory's deepest competitive moat was its store estate network, stating the benefit of the estate was significantly undervalued and misunderstood.

"The network creates a broader distribution platform than possessed by peers, and would be costly and difficult to replicate," the bank said. "The scale of the distribution platform has enabled Card Factory to take a significant market share in the largest (offline) segment of the UK greeting card market. Management is utilising its market share to disrupt online peers and establish a credible omnichannel presence.

Berenberg also said it expects the reinstatement of a dividend to expand Card Factory's appeal to income investors "and be a catalyst for investors to revisit this name".

RBC Capital Markets initiated coverage of the UK's two largest clay brick manufacturers on Thursday, slapping both Forterra and Ibstock with an 'outperform' rating.

The Canadian bank said both Forterra and Ibstock were "significantly" underearning, with adjusted earnings per share around 60-70% below 2022 levels and adjusted EBITDA margins around 700 basis and 400bps below for Ibstock and Forterra, respectively.

RBC forecast 2024 to 2028 adjusted EPS compound annual growth rates of 31% and 41% for Ibstock and Forterra respectively, driven by volume recovery, incremental earnings from near-complete multi-year capex cycle and a highly consolidated and rational sector.

The bank expects a cyclical recovery in UK housebuilding to drive a recovery in clay brick demand back to 2022 levels by 2028. It expects a 5% CAGR in housing completions to drive an 11% CAGR in brick demand as customers rebuild inventory levels.

"Whilst we think there is a possibility for a quicker recovery, particularly if a Labour government overhauls the planning environment, we think this is a prudent assumption," it said. "We expect 2H 2024 to mark the starting point. As high operating leverage businesses, we think initial drop through from volumes should be in the 30% to 45% range for both companies."

RBC has a price target of 210.0p on Forterra and 200.0p for Ibstock.

Citi has reiterated a 'neutral' rating on Coca-Cola HBC, predicting that the stock will "pause for breath" ahead of its first-half results next month.

The bank said it expects the soft drinks bottling firm to meet consensus forecasts with second-quarter volumes, with organic sales predicted to grow by 9.4% when it reports its interim results on 7 August.

Meanwhile, a "solid first-half profit delivery" should allow the company to upgrade its full-year organic growth metrics and guidance for organic EBIT growth to the 9-12% range, up from the 3-9% range guided to in April.

"However, given: 1) the recent solid share price performance; 2) greater opportunity for Q3 earnings upgrades at other European beverage stocks, e.g. CCEP, Heineken; 3) share buyback support now absent ahead of the print; and 4) the stock trading on a full but fair ex: Russia PE of 18.0x, we expect the shares to pause for breath," said analyst Simon Hales.