Broker tips: Kingfisher, GSK, Braemar

28th Aug 2024 15:18

(Sharecast News) - Citi downgraded Kingfisher to 'neutral' from 'buy' on Wednesday as it cited limited scope for near-term upgrades.

The bank noted the shares have had a good run, up around 32% from their February lows, supported by an improving macro backdrop in the UK and Poland, as well as ongoing share buybacks.

"While we continue to see scope for stronger UK outlook on the back of healthy consumer sentiment trends and higher housing market activity in FY 2025/26e, we move neutral here as we see limited upside risks to estimates amidst ongoing weakness in France and incrementally lacklustre consumer sentiment trends in Poland," the bank said.

"Stock trades on P/E of 14x, EV/EBIT of 11.7x and EV/Sales of 0.56x on our FY25e estimates and we see limited upside to current valuation near term."

In the medium term, Citi said improvements to French profitability and higher trade penetration across the group should see a structural re-rating driven by higher returns. It also kept its price target on the stock unchanged at 292.0p.

Shore Capital has reiterated its 'buy' rating on GSK after the biopharma giant's latest update about its ongoing Zantac litigation, saying that the stock's valuation was still undemanding compared with the wider market.

GSK welcomed a decision from the Delaware Supreme Court to review a lower court ruling that allowed the introduction of expert evidence in the ongoing litigation over Zantac, or ranitidine. It said the interlocutory review, granted under exceptional circumstances, was seen as a positive step, as it continued to defend itself against claims that its now-discontinued heartburn drug increased cancer risk.

GSK emphasised that the scientific consensus, supported by 16 epidemiological studies involving over a million patients, did not establish a reliable link between ranitidine and cancer. The majority of outstanding US cases against GSK, representing around 75,000 claimants, reside in Delaware state court

Shore Capital analyst Sean Conroy called the news "another ray of light" in the ongoing cases against GSK. "By no means does this news today clear the Zantac overhang, but we view this as a another positive for GSK (and other defendants). We believe this helps to support the view that there is no reliable evidence that Zantac caused certain cancers and GSK has strong grounds to continue defending itself in ongoing litigation," Conroy said.

The analyst believes that Zantac litigation has "disproportionately" weighed on the stock since the demerger of Haleon in 2022, despite the growth outlook for GSK improving, while the worst-case scenario for settlements - which Conroy said it up to $30bn - has already been priced into the shares.

"We still view the current discount to peers as unwarranted and largely attributable to misguided assumptions around the potential cost of litigation," he added.

Analysts at Canaccord Genuity initiated coverage on shipbroking services firm Braemar with a 'buy' rating and 410.0p target price on Wednesday, stating it was "all aboard for the super cycle".

Canaccord Genuity noted that Braemar operates across multiple segments and geographies, offering broking services across a selective but diversified range of segments, including tankers, specialised tankers/products, dry cargo and offshore. It also offers sale and purchase advisory, corporate finance services and securities services.

The Canadian bank stated that with a refreshed and focused management team since 2023, it thinks the shares offer "a rare opportunity" to invest in a company where the fruits of a turnaround are only just starting.

"This reflects a company now refocused on areas of potential competitive advantage where we think Braemar is on the cusp of both compounding upside and outperforming," said Canaccord Genuity. "We see potential in the shares amplified by reduced debt leverage of equity - allowing scope for targeted additional growth (either through new hires or acquisitions). We see long-term EPS progress likely to be accompanied by PER expansion (recovery)."

Canaccord also believes the outperformance was also set to be potentially compounded as the maritime cycle was on the upward part of a potential "super cycle" - due to a shortage of new ship-building capacity and increasingly stringent environmental requirements in key markets.