Broker tips: Coats Group, Marks & Spencer, National Grid
By Michele Maatouk
Date: Wednesday 24 May 2023
(Sharecast News) - Analysts at RBC reiterated their 'outperform' stance for shares of Coats Group on the back of their call with the company's finance director and head of investor relations.
"The overall messaging was positive highlighting a strong medium-term growth outlook and margin progression," they said in a research note sent to clients.
"This is very much in line with our recent note highlighting that a more stable backdrop can support an accelerated sales growth outlook and with margin expansion this can drive an EPS CAGR over 10% per annum."
They also noted that the shares were only changing hands on 10 times the thread and structural components manufacturer for fashion's estimated 2023 profits.
Its underlying free cash flow meanwhile was pegged at 8-10%.
The analysts also kept their 110.0p target price for the shares.
Analysts at ShoreCap told clients they believed they saw a "very attractive entry point" into Marks & Spencer's shares, given the increasing possibility of a rating expansion.
The food and fashion retailer's £482m of full-year profits before tax had smashed their estimate for £431m, on the back of a "major" beat on Food, alongside "strong" progress in Clothing.
And for the 2024 financial year, thanks to good trading momentum and further cost headwinds, they bumped up their estimate for pre-tax profit by 14% to £475m for earnings per share of 16.1p.
They were also anticipating a "modest" dividend payout for FY24, adding that the current price-to-earnings multiple on offer of 10.2 times was "modest", while the EV/EBITDA multiple was "lowly".
"[...] with rating expansion a strengthening possibility in our view; now should be a very attractive entry point."
ShoreCap was the house broker for Marks & Spencer.
Analysts at Berenberg reiterated their 'hold' recommendation and 1,100.0p target price on shares of National Grid, the British electricity and gas utility.
In their opinion, the company undoubtedly had a "huge" role to plat in the energy transition, both in the UK and the US.
After all, the company was investing nearly £8bn per year, double the run-rate seen over the previous decade.
There was also scope for even higher spend given demand for renewables connections, network upgrades and to accommodate other decarbonisation strategies.
But they judged that the shares were "fully valued".
"Regulation, politics and financing might limit the extent to which National Grid can capitalise on additional opportunities, especially with so much already on its plate," they pointed out.
The outlook for underlying earnings per share out to 2025/26 was "flattish" and inflation-linked dividend per share growth looked "moderate" to them given projections for 8-10% growth per year in its regulated asset base.
Curtailing EPS growth were the nearly 25% uptake of the scrip dividend and a non-cash drag from the UK's capital tax allowances.
National Grid's leverage - despite being manageable - was "high" and also limited the investment case, they said.
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