Broker tips: Next, Pennon, Greencore, Bakkavor
By Michele Maatouk
Date: Friday 31 Jan 2025
(Sharecast News) - UBS upgraded its stance on Next on Friday to 'buy' from 'neutral' and lifted the price target to 11,700p from 10,500p.
The bank said the fashion and homeware retailer was at an "inflection point" as far as growth and valuation are concerned.
It said that Next was a "safe haven" in an uncertain consumer landscape.
UBS lifted its FY27/FY28 pre-tax profit estimate by 1% and earnings per share by 3%/6%.
Elsewhere, Deutsche Bank upgraded Pennon to 'hold' from 'sell' and lifted the price target to 570p from 490p following the "deeply discounted" rights issue earlier this week.
"The amount of £490m was almost exactly in line with the £500m we anticipated," it said. "However, unlike for National Grid last year, the stock has so far traded very well after the announcement.
"It is possible that this changes from Monday when the stock goes ex rights."
However, Deutsche Bank said other elements of the update were better than expected.
"Pennon announced a material per-share dividend cut, although slightly better than we envisaged," it said.
"This should leave the shares yielding circa 6%, above the circa 5.0-5.5% for peers United Utilities and Severn Trent."
RBC Capital Markets initiated coverage of food producers Bakkavor and Greencore with a 'buy' rating.
Bakkavor and Greencore are both manufacturers of prepared food products to UK grocery and other retailers.
RBC said there is some overlap in categories (ready meals, salads, and soups) and in customers (Asda, Sainsbury's, M&S, Tesco). It also noted that Bakkavor has operations in the US and China, diversifying revenue but perhaps also increasing risk.
Meanwhile, Greencore has a distribution division, providing delivery direct to stores in the UK.
"Both have been undertaking strategic investments in internal operating efficiencies to grow margins above circa 6%," RBC said.
"BAKK has a progressive dividend yield of 6%, while GNC just re-started its progressive dividend at circa 1-2%, but also increases shareholder returns via share buybacks."
The bank set a 170p price target for Bakkavor, noting it has a leading UK market position and international presence.
"Under its 2022 strategic plan, BAKK has transformed operations to focus on profitable growth and strong customer service," RBC said.
"We forecast like-for-like revenue compound annual growth rate of 3.4% to 2027E, supported by diversification from the UK, US and China."
RBC said that with a strong balance sheet and low leverage ratio, it expects Bakkavor to consider the benefits of potential acquisitions.
"The US FPF (fresh prepared foods) market is in its early stages. As such, we expect a focus on UK targets to expand categories, customer exposure, or improve automation," it said.
RBC set a price target of 240p for Greencore.
"Under its 2023 strategic plan, management is developing a leaner and more efficient operating platform, driving profitability back to pre-Covid levels (circa £106m)," it said.
"We expect upside returns from more share buybacks and potential M&A."
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