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Broker tips: GSK, Kingfisher, Auto Trader, IntegraFin

By Iain Gilbert

Date: Thursday 15 Feb 2024

Broker tips: GSK, Kingfisher, Auto Trader, IntegraFin

(Sharecast News) - Analysts at Berenberg hiked their target price on drugmaker GSK from £16.50 to £18.20 on Thursday, stating the group had delivered "a strong performance year-to-date".
"We update our forecasts to reflect higher sales growth primarily from vaccines (Arexvy launch ramp strength) and HIV (long-acting sales growth ahead)," said Berenberg. "GSK's continued commitment to earnings growth ahead of sales this year, despite a significant tax rate increase, is supportive of the ongoing margin expansion thesis."

GSK also raised its mid-term sales and operating profit growth guidance and increased its 2031 sales target to more than £38.0bn, with management now expecting to hit its previous 2031 target, of more than £33.0bn, five years earlier.

"These upgrades reflect a strong underlying business, internal pipeline progress and incremental business development," said Berenberg.

Citi upgraded B&Q and Castorama owner Kingfisher on Thursday to 'buy' from 'neutral' as it argued the UK housing recovery supports a re-rating.

The bank said Kingfisher looks "well positioned to benefit from a recovery in the UK housing market".

"Ahead of the FY24 results, we think investor sentiment remains cautious, but we may be close to the end of the downgrade cycle, and early signs of UK housing market recovery may drive more constructive investor sentiment from here," it said.

JPMorgan Cazenove struck a cautious note on the outlook for Auto Trader on Thursday as it took a look at the UK automotive retail sector.

"With all eyes on retailer dynamics, we see growing risk to retailer operating metrics as falling used car prices challenge profit pools," it said. "With an accelerated decline in UK used car prices, falling 8% YoY in January, there remains a growing number of vehicles being priced below their market value leaving a £30m lost profit potential for retailers through January alone."

Against this backdrop, JPM said the key risk for Auto Trader remains downside risk to retailer numbers, and that it expects industry dynamics to become increasingly competitive through 2024 with falling prices driving pressure to margins/returns - currently at all-time highs - and potentially triggering consolidation/closures.

"Despite the recent underperformance over the past six months we continue to find relative valuation unattractive with the stock trading on 16x EV/EBITDA 25E for +6% CAGR25-27E versus Classified Peers on 11x for +10% CAGR," said the bank, which kept its 'underweight' rating and 623.0p target price on the stock.

"While we stay cautious on Classifieds through 2024 - we see scope for Auto Trader to underperform as concerns build on retailers, with downside risk to company-consensus 2025E."

RBC Capital Markets upgraded Transact owner IntegraFin Holdings on Thursday to 'outperform' from 'sector perform' and lifted its price target on the stock to 330.0p from 280.0p.

The Canadian bank said that amid the shifting sands of the relatively new Consumer Duty regime, IntegraFin stands out as the best-positioned UK platform.

"We see IHP as the business most compatible with the spirit of the Consumer Duty regulation that continues to be a source of uncertainty for the UK wealth sector," it said. "This is evidenced by the group's customer-centric policy of passing on interest earned on client cash, as well as the long-term commitment to reducing client charges. As a result, we see IHP as facing a fundamentally lower risk profile to earnings versus listed platform peers (Hargreaves Lansdown/and AJ Bell) that have generated material revenues and profits from interest on client cash."

RBC added that the stock's current valuation screens as attractive relative to peers.

"We believe IHP's superior income composition, lower regulatory risk and preferable market exposure merit a premium rating versus closest peer AJ Bell," it said, adding that the stock's underperformance and de-rating year-to-date was unwarranted, creating an attractive entry point.

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