Broker tips: IAG, IWG, Dunelm
By Iain Gilbert
Date: Wednesday 12 Aug 2020
(Sharecast News) - Davy cut its rating on IAG shares to 'neutral' ahead of an imminent painful rights issue for the owner of British Airways.
Analysts Stephen Furlong and Ross Harvey said IAG's rights issue, expected in September, was likely to dilute shareholders by at least 50% to raise €2.75bn (£2.5bn).
IAG's base case plan is to be 24% smaller in 2021 and for passenger demand to take at least four years to return to 2019 levels, Davy said. The company will suffer a €2.9bn operating loss in 2020 before recovering to post a €620m profit in 2021 and profit of €2bn and €2.7bn in the following two years, they predicted.
The Davy analysts reduced their rating on IAG from 'outperform' with a price target of £2 a share. The company, which also owns Aer Lingus and Iberia, has burnt through £178m a week of cash during the Covid-19 crisis. It has attracted criticism from unions and politicians over a brutal programme of job cuts at BA.
"The pertinent question for the network airlines, which transfer passengers through large hubs connecting long-haul destinations, is whether they can recover and, if so, how long will this take."
Analysts at Berenberg doubled their target price on serviced offices provider IWG from 130p to 260p on Wednesday on the back of the group's first-half results, released earlier in August.
Berenberg said IWG's first-half results, released on 4 August, gave the first full disclosure of the firm's performance during the Covid-19 pandemic, stating the results were "difficult to follow".
However, the German bank said a call with management, rather than the results themselves, had generated the most interest from investors, with particular attention being paid to comments that implied over £185m of savings should come through in 2021's numbers and the revelation that the firm was "in touching distance" of selling at least a portion of its US business to a franchise partner earlier this year.
While Berenberg said it remained "concerned" over the combination of an uncertain recovery and a relatively high valuation, the analysts acknowledged that there were "plenty of reasons" why investors will remain optimistic on the stock through the remainder of the year.
"While we remain more prudent in our forecasts, the savings target shows how volatile IWG's earnings can be and that a recovery could come more quickly than consensus expects," said Berenberg, which stood by its 'hold' rating on the stock.
Barclays initiated coverage of Dunelm shares at 'overweight' with a 1,425p price target on Wednesday as it highlighted its resilience and strong balance sheet.
The bank said that while there may be a risk to the homewares/furniture markets in a recession, its UK Spend Trends 2.0 indicates industry growth rates are currently strong.
"Combined with market share gains for Dunelm, we believe the company will be resilient and deliver attractive growth (14% profit before tax growth in FY22)," it said.
Barclays noted that Dunelm's recent trading statement revealed 30% of sales were derived from online since stores re-opened, and 12% of sales derived from click & collect.
"We see clear potential for combined digital channels to be more than 50% of revenue, which could drive earnings upside and valuation support," it said.
"Ongoing improvements to online, combined with strong product (often non-branded) from a committed group of suppliers, 50% gross margins, and a low-cost store estate in circa 170 locations (click & collect, potential to deliver from store), mean the company has sources of competitive advantage."
Barclays said the opportunities for growth are clear and while execution is critical, its discussions with management "indicate a company with the capabilities and desire to evolve and succeed".
Email this article to a friend
or share it with one of these popular networks:
You are here: news
10 Lower Thames St,
London EC3R 6EN