Broker tips: Boohoo, Wizz Air, Tui
By Iain Gilbert
Date: Wednesday 23 Sep 2020
(Sharecast News) - Analysts at JP Morgan Cazenove initiated coverage on fashion retailer Boohoo with an 'overweight' rating on Wednesday.
JP Morgan said Boohoo's multi-brand strategy, supported by its "test and repeat" model, had historically supported above sector average sales growth and margins.
However, the analysts said Boohoo had recently experienced "a material fall from grace", as it faced allegations that working conditions in UK supplier factories were not "socially responsible".
"Material steps forward in the supplier auditing processes had already been planned for 2020, and these are now being accelerated, backed by higher investment and third-party specialist support," said JP Morgan, which issued the group with a 415.0p target price.
"We believe that this increased focus puts Boohoo on the right path to start rebuilding confidence in the group's social responsibility."
JP Morgan added that it does not see Boohoo's "test and repeat" model as being under threat, with the group having already demonstrated its ability to roll it out to overseas suppliers, if necessary.
Morgan Stanley lifted its price target on budget airline Wizz Air as it argued that it remained one of "the best plays for recovery".
The bank noted that airlines are up around 40% from their March lows and said that while short-term trading trends have been deteriorating, there is upside risk of a gradual return to flying.
"Once this materialises, investor focus could shift to the recovery plays," in which it said Wizz remains one of the best plays.
Morgan Stanley said news flow on travel restrictions, capacity revisions and Covid-19 treatments and vaccines will likely keep airline stock volatility high.
"However, given the recent round of very negative news flow on increased quarantine restrictions in the UK and Europe and sharp capacity revisions for winter 2020/2021, we think short term earnings expectations are low," it said.
MS also said that despite its year-to-date outperformance, Wizz continued to offer one of the best risk reward scenarios due to comfortable liquidity positions, low-cost structures and managements' strategy to leverage growth prospects via market share gains.
MS rated Wizz at 'overweight' and upped its price target on the stock to 4,500.0p from 3,800.0p.
TUI will need to raise €2.0bn (£1.84bn) to strengthen its finances, Citi said as the bank cut its price target for the embattled holiday company.
Citi analysts cut their forecasts to reflect a weaker than expected cash position and more rapid cash burn into the first quarter of 2021 for TUI as well as lower planned winter capacity.
Liquidity will shrink to €0.7bn by the end of December from €2bn and though bookings should help rebuild liquidity from January onwards should rebuild liquidity there are multiple risks, the analysts said as they cut their target price on TUI shares to 135.0p and kept their 'sell' rating on the stock.
Press reports have suggested TUI is considering raising up to €1bn from shareholders but that does not look like enough given the pressures on the business, James Ainley and colleagues said. Covid-19 cases are on the rise in Germany, the UK and TUI's other major markets and the UK has just imposed new restrictions to try to stem the spread.
"We think a raise of €2.0bn is required to provide headroom over covenants," the analysts wrote in an excerpt of a note to clients. The excerpt did not say what the analysts' previous target price was.
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