Broker tips: Kingfisher, Darktrace, Marks & Spencer
By Iain Gilbert
Date: Thursday 11 Apr 2024
(Sharecast News) - HSBC upgraded B&Q and Castorama owner Kingfisher to 'buy' from 'hold' and lifted its price target on the stock to 305.0p from 235.0p.
This implies an upside of 26% and is driven by an improved medium-term outlook, the bank said.
HSBC said a macro recovery, France restructuring and trade and e-commerce & digital represent growth opportunities for the company.
The bank said it was updating estimates for FY results and revised guidance for FY25, which it views as the bottom of the cycle.
Analysts at Berenberg raised their target price on software and services firm Darktrace from 600.0p to 630.0p on Thursday after the group's third-quarter results earlier this morning demonstrated a continuation of "strong momentum" seen in Q2.
Berenberg noted that annualised recurring revenues had grown 23.5% year-on-year to $731.1m, with $29.0m of net annual recurring revenues added in the quarter - up 6.2% year-on-year.
"We think that this is particularly significant within the context of negative yoy changes in net ARR added in Q1 (-22%) and Q2 (-4%)," said Berenberg, which has a 'buy' rating on the stock.
The German bank added that the company also upgraded its growth and margin outlook for the third time in three months, leading the analysts to increase its ARR, revenue and adjusted underlying earnings forecasts in response.
"In our view, Darktrace remains poised to outperform, given: a) its ongoing potential to exceed growth and margin expectations; b) that it has sufficient growth and operating leverage to drive a c30% FY23- FY26 CAGR in free cash flow per share; and c) the fact that it warrants a multiple rerating - at 4.4x CY24 EV/sales, it trades at a c60% CY24 EV/sales discount to US peers," said Berenberg.
JPMorgan Cazenove upgraded Marks & Spencer on Thursday to 'overweight' from 'neutral' and lifted its price target to 330.0p from 260.0p as it took a look at European general retail.
The bank said it has looked at elasticity to real clothing price changes over the long run in an effort to better forecast volumes in a positive real wage environment.
"Our bull case, applying elasticity of -0.8 as witnessed in the early 2000s - a time when there was consistent deflation in the UK clothing market - would imply value growth in the UK clothing market of circa 3% in 2024," it said. "If we were to instead apply the -0.4 elasticity witnessed in 2019, this would imply growth of +1%. We set the mid-point of +2% as our 2024 forecast, in line with the average value growth in the UK clothing market in the five years prior to the pandemic."
JPM noted that the year has started below this and said investor expectations are higher than its forecast. In this context, it prefers to own the retailer where share gains are highest, expectations are lowest, and valuation least demanding.
"Despite the already strong recovery in the Marks & Spencer shares, the stock still ticks all three boxes, and we upgrade to OW," it said. "Marks & Spencer has demonstrated the biggest positive inflection in market share coming out of the pandemic (improvement in trend of +230bps). Combined with more to go for in mens and kidswear, along with compelling sales uplifts from store renewals, we see recent gains as sustainable."
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