Broker tips: Flutter Entertainment, Premier Foods
By Iain Gilbert
Date: Friday 15 Nov 2024
(Sharecast News) - Premier Foods' share price rally has further to run, according to RBC Capital Markets, which reiterated an 'outperform' rating on the stock on Friday and hiked its target price following the manufacturer's interim results this week.
RBC said it had previously applied a higher cost of equity (8.0%) for Premier Foods than other foods companies (7.5%) due to concerns about the company's pension liabilities and its historic performance. However, Premier's "predictable, measured performance" has prompted the broker to move its calculations back in line with peers, leading to a 10% increase in the price target to 220.0p.
The company delivered "impressive" double-digit volume growth in the first half, partly offset by the negative impact of pricing actions, RBC said. But the broker predicted that, while volume growth will moderate in the second half, there should be a easing or even reversal in negative pricing towards the end of the year.
"When Premier announced its intention to stimulate volume growth in 2024/25 by promoting heavily, even at the expense of price deflation, we were intrigued," said RBC, which previously had concerns that the company's actions would prompt a reaction from competitors, depleting value across its product categories.
"In the event, our concerns were unfounded. It seems that the main competitors - predominantly private label in many of Premier's categories - were already frantically competing with discounters and were happy to accommodate a more competitive branded offering," RBC said.
Analysts at Berenberg raised their target price on Flutter Entertainment from 20,300.0p to 23,200.0p on Friday, stating that the bookmaker's Q3 performance showed sustained share gains.
Berenberg said Flutter had delivered Q3 results that were "significantly above expectations", with FY24 guidance much better than anticipated.
"We were expecting a beat at Q3, but the one delivered was well ahead of our expectations and broad-based across divisions," said Berenberg.
Furthermore, the German bank noted that the market had anticipated a downgrade to Flutter's US underlying earnings from sports results but highlighted that the actual downgrade was smaller, while ex-US guidance was upgraded.
Berenberg, which has a 'buy' rating on the stock, stated that on a headline price-to-earnings basis, Flutter trades on 30.2x for a "solid" 41.4% earnings per share compound annual growth rate.
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