Broker tips: Whitbread, GB Group, Renew Holdings, Flutter Entertainment

12th Jun 2024 15:16

(Sharecast News) - Jefferies reiterated its 'buy' rating on Whitbread but lowered its target price on the stock to 4,000.0p from 4,200.0p on the back of the hospitality firm's growth plans.

The owner of Premier Inn, Beefeater and Brewers Fayer, among others, announced plans last month to overhaul its struggling food and beverage business, including closing sites and cutting 1,500 jobs.

Jefferies said the accelerated growth plan meant it now had a "clear line of sight on the F&B turnaround, stronger long-term UK margins, pipeline trajectory and market share growth".

It continued: "In the next 12 months, the re-rating catalyst path stems from potential second quarter revenue per available room inflection, after a damp first quarter; Germany break-even in the second half; and operating expenses inflation rollover in the 2026 full year.

"Estimates also appear de-risked on the known unknowns, sensitivities inside," said Jefferies. "With earnings largely de-risked - our 2025 full year estimated adjusted pre-tax profits are £525m versus consensus for £533m - and a clear path to re-rating."

Analysts at Canaccord Genuity raised their target price on software firm GB Group from 375.0p to 455.0p and moved the stock from 'speculative buy' to 'buy' on Wednesday following its full-year results a day earlier.

Canaccord Genuity stated that yesterday's FY24 results gave it further confidence that growth was sustainably re-accelerating. GB Group has seen "consistent sequential growth improvements" over the last 12 months to a roughly 5% FY24 exit-rate on the back of improving trends in its largest segment, identity, which was expected to continue this year.

The Canadian bank noted that further down the profits and loss and cash flow statements, a sequential improvement in gross margins from 69% in H124 to 71% in H2, plus well-flagged cost savings, drove underlying operating margins to 22.3%, up approximately 200 basis points year-on-year.

Canaccord also highlighted that unlevered free cash flow of £43.0m/£35.0m after interest payments grew almost 50% year-on-year despite a roughly £5.0m net working capital outflow.

"The recent multi-year growth and EPS downgrade cycles should now be in the rear-view mirror, with key metrics such as organic growth, EPS (CGe 15% FY24-27 CAGR) and ROCE inflecting. As GBG re-builds investor confidence, the shares' discount to peers should further narrow," said Canaccord.

Over at Berenberg, analysts raised their target price on engineering services firm Renew Holdings from 1,250.0p to 1,200.0p on Wednesday following the group's capital markets day last week.

Berenberg said Renew's CMD focused on growth opportunities in its existing end-markets, the collaboration efforts between operating brands within the group and reminded investors of where the M&A focus was for management.

The German bank also noted that following this "timely revisit" of the opportunity for the group, it was "pleasing" that Renew announced its third acquisition in the last 12 months - buying Excalon Holdings for up to £26.0m of consideration for underlying earnings of roughly £3.0m.

"The acquisition opens up the attractive, structural growth energy transmission and distribution market for the group, while adding yet another speciality to the group's evolving stable of high-quality operating companies," said the analysts.

Berenberg, which has a 'buy' rating on the stock, updated its forecasts for the stock following the deal, increasing underlying earnings by approximately 4% in FY25 and FY26 and earnings per share by about 3-4%. On its revised forecasts, Berenberg said Renew trades on 14x FY24 price-to-earnings ratio.

JPMorgan has reiterated its 'overweight' rating on gambling group Flutter Entertainment, saying that the recent drop in the shares has been "excessive".

The stock remains the bank's top pick within the gaming sector, with recent weakness highlighted as a "buying opportunity".

JPMorgan analyst Estelle Weingrod put the stock's recent pullback down to "a flurry of negative regulation headlines in the US" as well as some overall weakness within the travel and leisure sector.

"Whilst we see these regulatory headwinds as largely manageable and somewhere expected, their cadence and magnitude (especially on the US tax front) has caught the market by surprise, we believe," Weingrod said.

JPM, which has a 20,700.0p target price on the stock said that much of the risk related to tax increases has already been baked in, while larger-scale operators like Flutter's US sports betting division FanDuel should be better equipment to mitigate the impact.

"All in all, we believe FanDuel is among the best positioned in a very appealing sector with attractive growth prospects at a time when it can further leverage its scale, hence more likely than smaller operators to realise operating efficiencies in the US (in terms of promotions etc.)," Weingrod said.