Broker tips: DCC, FirstGroup

6th Jun 2024 15:56

(Sharecast News) - JPMorgan Cazenove reinstated coverage of DCC on Thursday with an 'overweight' rating and 6,700.0p price target, stating that it was positive on the stock for three reasons.

Firstly, it said the energy segment will continue to benefit from organic growth and value-add M&A, with DCC building a leading position in European B2B solar installation, which is a fast-growing market. The bank said the goal of increasing Energy profit to £830.0m in FY30 is achievable, in its view.

Secondly, JPM said that healthcare was on the cusp of a market recovery, and finally, it said technology profit was stabilising, driven by self-help, with portfolio optimisation optionality.

"We forecast high single-digit percentage earnings per share growth in FY25-26E excluding future M&A," it said.

JPM noted that DCC trades on a 30%/25% discount versus the ten-year median price-to-earnings and relative price-to-earnings ratio, respectively.

Citigroup has said that the Labour Party's plans to renationalise the railways could offer some near-term upside for transport firm FirstGroup despite recent concerns.

FirstGroup's stock has traded broadly sideways over the past month on the back of worries about Labour's expected victory in the upcoming general election after the party in April unveiled plans to renationalise Britain's railways "within five years" should they win.

FirstGroup runs three major UK train operating companies, Avanti West Coast, Great Western Railway, South Western Railway, as well as two open-access passenger rail services, Hull Trains and Lumo.

Proposals put forward by Labour suggest that passenger services would be taken back under government ownership as current contracts expire, managed under a new public body, Great British Railways. Open-access services by independent operators like Hull Trains and Lumo could continue to operate privately.

"We expect the current rail franchise to run its core term and is likely to be brought in-house by the government post the end of the contract," Citi said in a research note.

"In fact, we see potential for extension of contracts expiring in the next 12 months by one to two years. This is likely to be upside for FirstGroup given GWR and SWR are expiring in the next 12 months."