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Broker tips: Breedon, Domino's, Trainline, Chemring

By Iain Gilbert

Date: Friday 23 Feb 2024

Broker tips: Breedon, Domino's, Trainline, Chemring

(Sharecast News) - Barclays upgraded construction materials company Breedon Group to 'overweight' from 'equalweight' on Friday and hiked its price target for the stock to 450.0p from 380.0p.
The bank expects 2024 to represent a trough year for volumes but sees scope for margin upside supported by both a residential-led volume recovery from the second half and improved price/cost.

"With the balance sheet providing optionality and the stock on close to a trough price-to-earnings multiple, we see this as a valuation opportunity and upgrade to OW," it said.

Barclays also cut its rating for the UK-listed shares of American pizza chain Domino's from 'overweight' to 'equalweight', citing concerns regarding a slowdown in takeaway app downloads.

The bank said that data from competitive intelligence platform Apptopia suggested that Domino's app downloads have fallen in recent months. So, with the company set to meet some tough comparatives against last year, it thinks like-for-like sales momentum may begin to ease.

"App penetration rate was an impressive 79% in Q3 23 so the upside from here is less significant," Barclays said in a research note on Friday. "Upside risks are bullish long-term targets from new CEO at FY23 results on March 12th," Barclays said.

Domino's said in a third-quarter trading update in November that the app now accounts for 45.7% of system sales, an increase of 3.7 percentage points compared with the same period last year, with active app customers having risen 5% over the past six months to 5.6m.

Canaccord Genuity has hiked its target price for Trainline ahead of the booking platform's trading update next month after pencilling in a less-than-expected impact from recent rail strikes.

There were 24 strike days in Trainline's current financial year ending 28 February 2024, which Canaccord estimates had a negative impact of £120.0m on net ticket sales - equal to 2% of the full-year number.

"With only one UK Rail union (ASLEF) still striking and at a reducing rate, we believe the negative impact from strikes is reducing," the broker said.

Meanwhile, Canaccord said that Trainline's international operations were becoming "less of a drag", with strong growth seen in Spain and Italy. A reduction of marketing spend in Germany and France due to less new carrier competition should also help earnings too.

The broker lifted its underlying earnings forecasts for the financial years ending 2024, 2025 and 2026 by around 2%, helping its target price for the stock up to 428.0p, up from 371.0p previously.

Canaccord, which reiterated its 'buy' rating on the stock, added that Trainline has significant future growth drivers over the medium-to-long term.

Analysts at Berenberg raised their target price on aerospace and defence group Chemring from 370.0p to 415.0p on Friday, stating demand was driving the group's order book higher.

Berenberg said Chemring was an "underappreciated re-stocking play", nothing that its AGM trading update pointed to "further high order intake" across the portfolio in response to "buoyant end-market demand" driven by rising defence budgets.

The German bank, which reiterated its 'buy' rating on the stock, noted that severe weather has caused some delays to deliveries in Q1, although it pointed out that this was not expected to affect the group's full-year result.

"Chemring is an underappreciated play on very strong ammunition demand and the year-to-date underperformance of the shares is unmerited (+3% versus UK peers +20%), in our view. We increase our price target to 415.0p, reflecting higher peer multiples," said Berenberg.

"Severe winter weather conditions have affected manufacturing operations at a number of the group's countermeasures and energetics sites. This has resulted in delays to some deliveries scheduled for Q1, although the company expects to recover from the financial impact in H2. We make no changes to our full-year estimates, although now model a greater H2 weighting to revenue and profit to reflect this. We now model a 40/60 weighting to revenue and 31/69 to EBIT in FY24."


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