Portfolio

Broker tips: THG, Fever-Tree, St James's Place

By Iain Gilbert

Date: Tuesday 18 Jan 2022

(Sharecast News) - Liberum cuts its price target on THG on Tuesday to 700.0p from 750.0p after the online retailer warned that its profit margins for the year will miss analysts' forecasts and revenue growth will slow.
In an update for the quarter ended 31 December 2021, the company said its full-year adjusted underlying earnings margin was expected to be between 7.4% and 7.7%, below market expectations of around 7.9%, due to adverse foreign currency movements.

It also said that revenue growth would slow to between 22% and 25%, with Liberum highlighting that this compares with consensus expectations of around 30%.

The broker, which reiterated its 'buy' rating on the shares, said it was cutting estimates based on the updated guidance but continues to believe that the fundamentals in place at the time of the IPO have not changed, "so the extent of the share price decline we saw last year is excessive".

Analysts at Jefferies hiked their target price for shares of Fever-Tree and upgraded their recommendation for its shares from 'hold' to 'buy', telling clients that it was a "leveraged play on spirits premiumisation trends and was uniquely positioned to lead and grow the premium mixers market".

Jefferies noted that after having conducted bottom-up work on the addressable market and competition, and given the company's execution, it now had increased conviction in Fever-Tree's "US opportunity".

All told, the analysts revised their target price for the stock from 2,200.0p to 3,400.0p and said they were now 50% ahead of consensus US expectations by 2026.

Commenting on the US opportunity, Jefferies added that Covid-19 had accelerated at-home sampling and that its analysis indicated that mainstream mixer brands were losing distribution and new mixer brands were failing to gain distribution. However, Fever-Tree was seeing strong momentum in the off-trade through both distribution and like-for-like growth.

On-trade meanwhile was "ripe" for premium adoption as Americans returned to bars, Jefferies explained.

Analysts at Berenberg raised their target price on wealth manager St James's Place from 1,348.0p to 1,900.0p on Tuesday despite the firm having already outperformed the UK FTSE-350 financials index by 50% since the Covid-19-induced trough in 2020.

Berenberg believes that St James's Place's model, characterised by high retention, low price elasticity and exceptionally low flow volatility relative to the market, was well placed to benefit from continued structural-flow tailwinds.

The German bank, which reiterated its 'buy' rating on the stock, stated these prospects were further supported by SJP's "unique" funds under management structure, in which gestation FuM that currently drives no recurring revenue will likely be responsible for over 80% of the firm's expected growth in revenue over the next four years.

"This provides strong visibility on medium-term earnings growth," said Berenberg. "Trading at a discount to its long-run average P/E and FuM multiples, we think that SJP's 18.9x one year forward P/E - for a 16% 2021-25 EPS CAGR - is compelling."

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