Broker tips: DCC, Judges Scientific, Sainsburys, Tesco
By Iain Gilbert
Date: Tuesday 19 Nov 2024
(Sharecast News) - Jefferies hiked its price target on buy-rated DCC to 7,950.0p from 7,600.0p on Tuesday after the sales, marketing and support services group announced last week that it was planning to simplify its operations and focus on the energy sector.
DCC said last week that it had begun preparations for the sale of DCC Healthcare, which is expected to complete next year. In addition, the company will review strategic options for DCC Technology within the next 24 months.
Jefferies said its sum-of-the-parts valuation suggests more than 40% upside potential to the current share price, and, following discussion with management, it is "increasingly confident that the move to simplify the group will unlock embedded value".
"We believe that the misunderstood and underappreciated energy division now commands attention," it said.
Jefferies noted that Health and Tech added two layers of complexity to DCC and more recently have been a drag on growth and returns. As a pure play on energy distribution, it believes the company will be able to deliver mid-single-digit organic EBITA growth and mid-teen post-tax return on invested capital.
Analysts at Berenberg lowered their target price on scientific instruments business Judges Scientific from 12,400.0p to 11,310.0p on Tuesday, stating the group was approaching a "trough cycle".
Earlier in the week, Judges Scientific published a trading update that H2 revealed orders that it was relying on to meet market expectations would no longer be delivered in time.
However, Berenberg stated that in the context of "well-flagged, persistent end-market weaknesses", Judges' profit warning, while disappointing, was perhaps unsurprising.
"Given the magnitude of the guidance revision, we think that this may be the last 'cut' in a tough cycle for Judges," said Berenberg.
But the German bank also noted that a number of orders that have slipped in H224 should be delivered in FY25, including a highly profitable Geotek coring contract, and pointed out that Judges will begin to lap a soft comparable period, which should again trigger positive year-on-year growth.
"When the dust settles we therefore think an attractive buying opportunity may present itself," added Berenberg, which reiterated its 'buy' rating on the stock.
RBC Capital Markets initiated coverage on Sainsbury's and Tesco on Tuesday, saying it sees "attractive" growth prospects for the two major UK-listed grocery retailers.
It started coverage of Sainsbury's at 'outperform' with a 300.0p price target and said the supermarket chain had made good progress in resetting its price/value proposition in recent years, which has supported a more than 0.5% gain in market share in the last two years.
"We are encouraged by its focus on its food offer, which we think could support further low single-digit percentage market share gains in the medium term," it said.
In particular, RBC said it sees an opportunity for Sainsbury's as it rebalances its store estate to showcase more of its food offer.
RBC initiated coverage of Tesco with a 'sector perform' rating and 375.0p price target, stating that Tesco was a "well-run" food retailer and its successful business model is evidenced in its market-leading position and operating margin of more than 4%.
"We think Tesco has been well positioned to capture share across the last couple of years, given its strong focus on value," RBC said. "However, we see potential for the likes of Asda and Morrisons to trade more competitively in 2025, under new management teams. Therefore, further share gain may be more difficult to come by."
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