Broker tips: Dr Martens, Hollywood Bowl, Babcock
By Michele Maatouk
Date: Tuesday 30 May 2023
(Sharecast News) - RBC Capital Markets downgraded shares of iconic bootmaker Dr Martens on Tuesday to 'sector perform' from 'outperform' and slashed the price target to 180p from 230p as it said FY24 guidance may prove too optimistic.
"Whilst we view the longer-term growth potential for DOCS as attractive, we are mindful of nearer term challenges particularly for the US market (37% revenues), which do not appear to be adequately reflected in company FY24E revenue guidance or consensus," it said.
"Share price performance and our DOCS call has not been the best up to now, and for a variety of reasons (de-rating, UK exposure, US DC execution) however we see the potential for further deceleration/earnings downside," RBC added.
The bank said it was lowering estimates by 8%/9% for FY24E revenue/earnings per share and sits 8%/4% below consensus.
Elsewhere, Berenberg lifted its price target on Hollywood Bowl to 370p from 360p following an "impressive" set of interim results.
It noted that the company delivered like-for-like revenue growth of 3.5%, a record first-half revenue number of £110.2m and adjusted EBITDA pre-IFRS 16 of £35.1m, reflecting 13.2% growth year-over-year excluding the VAT benefit on bowling in the first half of 2022.
With respect to the outlook, Hollywood Bowl said it remains cognisant of macro-economic factors but is pleased with current trading, which is in line with the board's financial expectations.
"As a result of the strong set of results, we lift our estimates and increase our price target to 370p," Berenberg said.
"With its market-leading position in the UK and growth opportunities in Canada, the continued cash flow generation of the business, the success of its refurbishment and new centre opening strategy, our confidence in the company's future prospects are further reaffirmed by this set of results."
Berenberg has a 'buy' rating on the shares.
Jefferies reiterated its 'buy' rating on Babcock and upped the price target to 460p from 450p as it assumed coverage of the shares and took the opportunity "to revisit the case and provide an update on the Type 31 situation".
"We believe that Babcock is at a turning point of its equity story, with the free cash recovery, driven by both EBITA margin recovery and a drop-off in one-off cash headwinds, making its value appeal (8.0% FY25 FCF yield, 10% FY26E) clearer."
Jefferies said long-term growth for the group is supported by its exposure to growing defence markets, while its potential involvement in AUKUS - a trilateral security pact between Australia, the UK, and the US - could also be significant.
The bank also said that the main risks to its positive view on Babcock are the Type 31 programme and inflation.
"We are mindful of risks on Type 31 and inflation and include £250m of provisions (versus £50-100m guided) in our EV," Jefferies said.
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