Broker tips: PayPoint, Signature Aviation, Ryanair and Wizz Air
By Iain Gilbert
Date: Thursday 28 May 2020
(Sharecast News) - Analysts at Liberum raised their target price on payment services group PayPoint from 800.0p to 1,000.0p on Thursday after the group's full-year results came in ahead of estimates a day earlier.
Liberum noted that PayPoint's full-year results came in ahead due to a waiver of the management bonuses, leading the firm to propose a final dividend despite current economic uncertainties.
While the analysts acknowledged that current trading was impacted by the Covid-19 pandemic, they also said there were "clear signs of improvement".
Liberum increased its 2021 fully-diluted earnings per share estimates for PayPoint from 35.4p to 42.1p, noting unusual uncertainty, and also highlighted that £12.9m of IFRS 16 spot net debt in 2020 was "a little better than expected" - leading it to reduce its full-year 2021 net debt estimate from £27m to £7m.
The analysts also pointed to "robust" trading at PayPoint's pre-pay energy business, UK Bill & General, and some strong growth at MultiPay.
PayPoint's UK Retail Services unit was also praised for rolling out its PayPoint One service ahead of expectations, but noted it had since slowed, while the company's Parcels business was given credit for its "good momentum", aside from the effect of Covid-19.
Liberum reiterated its 'buy' rating on the firm.
Berenberg downgraded Signature Aviation - formerly BBA Aviation - to 'sell' from 'hold' on Thursday as it said the stock's re-rating has been too aggressive.
It noted that since its lows in April, Signature shares have rallied nearly 80% and are outperforming the FTSE 250 year to date.
"We feel the market has got ahead of itself. The aviation industry is facing its biggest crisis, perhaps ever, with the outcome, winners and losers yet to be determined," it said. "With this in mind, a 17x 2021 price-to-earnings (pre-IFRS 16), reflecting a 'normal year' earnings, is well above historical averages, despite the significantly higher degree of uncertainty."
Berenberg said that on consensus numbers, Signature is trading at its highest relative valuation versus the FTSE 250 over the last five years.
2Given the sluggish recovery expected - -our FY 2022 EBIT remains below FY 2019 - we think there is downside risk to the valuation, with material long-term earnings risk."
The bank maintained its 165p price target.
Ryanair and Wizz Air are the European airlines that offer investors the best balance between risk and reward, according to Morgan Stanley.
Airline share prices have jumped as governments have started to ease travel bans with the sector up about 30% in the past two weeks. Performance in 2020 is highly varied, ranging from -19% for Ryanair to -60% for IAG though this range is varied, Morgan Stanley said.
Even with this share price difference, low-cost carriers are better value, Morgan Stanley analyst Carolina Dores and her colleagues said. With greater cost flexibility and cash, Ryanair and Wizz are pricing in more than 12 months of planes fully grounded.
When looking at share prices versus earnings estimates Ryanair and Wizz are still 12-19% below historical multiples. The difference is partly explained by investor concerns about which airlines will need to raise capital, Morgan Stanley said.
"At this point, we continue to see a better risk reward in Ryanair and Wizz, though we think that if the recovery in demand is faster than our estimates easyJet could be an attractive investment option also," Dores wrote in a note to clients.
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