Broker tips: Fresnillo, WPP, DFS Furniture
By Iain Gilbert
Date: Thursday 19 Jan 2023
(Sharecast News) - UBS downgraded precious metals miner Fresnillo on Thursday to 'sell' from 'neutral' and cut its price target on the stock to 850.0p from 900.0p.
The Swiss bank said consensus costs were too low, that there were risks to silver guidance and the valuation was stretched.
UBS said operational issues and guidance downgrades had caused Fresnillo to underperform gold peers by around 75% over the last seven years, since it started missing/downgrading guidance, resulting in some de-rating.
It also noted the shares were now trading at 7-8x estimated 2023 EBITDA versus a 2011-20 average of around 14x.
"However 8x EBITDA remains a premium multiple versus gold peers and in our view it is too early to say that Fresnillo's operational challenges are behind them."
UBS said it has "high conviction" consensus for 2H22 and 2023 costs is too low, reckons 2023 silver production guidance may be too high and continues to see a risk of downgrades to reserves and resources.
"In our view, upcoming production results (25 Jan) and financial results (7 Mar) will act as negative catalysts for the stock," it said.
Goldman Sachs upgraded WPP on Thursday to 'buy' from 'neutral' and hiked its price target on the stock to 1,158.0p from 920.0p, stating it expects the shares to outperform this year as several headwinds begin to unwind/ease.
The US bank also said that broader structural trends remained supportive of the industry's growth outlook.
"We see upside to consensus numbers on both organic growth and margins as a result, and also see optionality from portfolio optimisation and capital allocation upside," it said.
GS added that the share price underperformance over the last year - down 22% versus global peers flat on average - offered a good entry point.
Analysts at Berenberg lowered their target price on soft furnishings retailer DFS Furniture from 280.0p to 195.0p on Thursday but said the group still had "bouncebackability".
Berenberg stated that after a "difficult" summer period, DFS had achieved a recovery in momentum in more recent months and while near-term trends may well remain volatile, it believes it to be perfectly possible that DFS trends back towards historical levels of profitability in the medium-term, which would leave its rebased estimates "far too conservative".
The German bank noted that the nature of DFS' business meant that ebbs and flows in trading were "inevitable", and that was said to be "particularly true" of 2023 to-date.
"After a very difficult start to FY23 over the summer months, momentum has improved in more recent times, such that Q2 (calendar Q4) order intake was 16.3% ahead of pre-Covid-19 pandemic levels, while the company also commented on continued strength in the early stages of H2," said Berenberg, which reiterated its 'buy' rating on the stock.
Berenberg stated that further volatility in trading trends could be ruled out but noted that the company had reiterated its previously established mid-case scenario for 2023 outturn - being pre-tax profits of £36.m.
"On our revised estimates, DFS trades on 13x/10x CY23/24 EPS and a 6%/11% FCFE yield respectively. However, were the company to recover to its previous base of £85m PBT, this would imply a P/E of 6x."
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