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Broker tips: Royal Mail, Marshalls, EasyJet

By Iain Gilbert

Date: Friday 20 May 2022

Broker tips: Royal Mail, Marshalls, EasyJet

(Sharecast News) - Analysts at Berenberg lowered their target price on courier Royal Mail from 650.0p to 575.0p on Friday, stating there was "no reprieve" for the stock just yet.
Berenberg said uncertainty remained the main driver of the shares for now, with shares down roughly 12% following its recent earnings despite Royal Mail effectively being the only listed mid-cap postal business in Europe not to cut guidance for the coming year and it being the cheapest in the sector and the worst performer year-to-date.

The German bank stated a lack of visibility about Royal Mail's union pay deal in the UK continued to dominate the narrative for the stock, even though it thinks that an "extremely adverse outcome" has now been more than priced in.

Although Berenberg, which reiterated its 'buy' rating on the stock, lowered its price target on the stock, it still thinks that over 90% upside to the shares remains once the sentiment overhangs can be worked through.

"With the shares trading on just 5.4x P/E and 5.3x EV/EBIT for CY22E (versus historical averages of 11x and 9.5x respectively), we think that a very negative scenario is priced in - the market is clearly unwilling to give the business the benefit of the doubt until there is more clarity on the pay deal in the UK," said the analysts.

"Even with a very negative result for the negotiation (eg a c10% pay deal with little mitigation), we think the shares would be trading on c7x EV/EBIT - still a 25% discount to history, despite the improvements made to the business over the past two years."

Analysts at Deutsche Bank downgraded their rating on hard landscaping products manufacturer Marshalls from 'buy' to 'hold' on Friday, stating the group's future was "paved with greater uncertainty".

Deutsche Bank said its downgrade of Marshalls comes amid "a more uncertain economic backdrop", with the analysts now expecting core business volumes to fall in the current trading year and the next as pressure on discretionary spending intensifies.

Although the German bank acknowledged that the recent acquisition of pitched roofing systems supplier Marley likely diluted this exposure, it was still "far from immune" and noted that the acquisition also introduced leverage.

Deutsche Bank also reduced its target price on the stock by roughly 29% from 885.0p to 629.0p, largely reflecting a higher weighted average cost of capital.

EasyJet rallied on Friday after Bank of America Merrill Lynch reiterated its 'buy' rating on shares of the budget airline.

BofA said easyJet struck a bullish tone on the outlook for summer in its earnings call on Thursday. It pointed out that summer bookings have trended at 13% above 2019 levels for the past 10 weeks, with yields up 15% versus two years ago.

"This is the strongest yield increase highlighted by a European airline since the beginning of the pandemic, and above our expectations," Bank of America said.

It lifted its full-year 22 pre-tax profit estimate to £100.0m from breakeven as it took into account higher loads over the summer quarter.

The bank also highlighted a strong balance sheet, which supports potential growth, and said easyJet was well positioned to benefit from a strong recovery in European leisure travel.

Reporting by Iain Gilbert and Michele Maatouk at Sharecast.com


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