Broker tips: Howden Joinery, Diageo, WH Smith
By Iain Gilbert
Date: Monday 03 Mar 2025
(Sharecast News) - Jefferies downgraded Howden Joinery on Monday to 'hold' from 'buy' and slashed the price target to 854p from 1,020p as it said there are limited factors to distract from demand jitters.
"While Howdens remains a compelling multi-year investment poised to benefit from UK RMI recovery, the stock may be more range-bound in the coming 12 months," Jefferies said. "Not only does new guidance suggest market demand has yet to bottom, but paring back of expectations for other elements of the business means there is little to offset demand jitters for now."
The bank said that at 18.7x 2025 estimated price-to-earnings, Howdens trades at the upper end of its historical range despite recent share price weakness. Jefferies also said the long-run investment case was intact.
"We continue to see Howdens' long-run equity story as compelling - scope for above-market growth, sector-leading margin with further upside, and strong cash generation/ balance sheet underpinning optionality for capex, M&A and extra cash returns," it said.
"We see the 2024 results as confirming many of Howdens' strategic strengths and giving comfort that recent issues are purely a function of a difficult market backdrop - clear outperformance versus underlying markets in all regions (with France showing a notable turnaround in 2H24) and a robustly expanding gross margin."
Deutsche Bank upgraded Diageo on Monday to 'hold' from 'sell' as it said that its unchanged price target of 2,020p now suggests just 6.6% downside.
The bank noted that since it downgraded the drinks company to 'sell' on 29 June 2022, the shares have fallen 42%, underperforming the Stoxx Europe 600 food and beverage index by 31%, the Stoxx Europe 600 by 55% and the FTSE 100 by 52%.
"As we have argued throughout, we believe Diageo is fundamentally one of the best positioned companies in European Staples," Deutsche said. "However, we believe this is broadly balanced by a combination of near-term risks and potential structural headwinds at this level."
Analysts at Berenberg reiterated their 'buy' rating and 1,600.0p target price on retailer WH Smith on Monday as it said the group's potential high street exit looked "sensible".
Berenberg said WH Smith was "well positioned" to benefit from structural growth trends in the global travel concession market, in its view, noting that airport passenger volume growth, as well as continued product category expansion and higher average transaction values, should be "supportive". It also reckons that the opportunity for further tender wins, particularly in North America, also remains "vast".
"On 25 January, press reports stated that WH Smith was exploring a potential sale of its UK high street business as part of a strategic review," noted the German bank. "Given the structural decline of the division, we view this move as positive - removing an overhang from the investment case and potentially driving a re-rating of the earnings multiple."
Berenberg said its analysis implied the division could be worth £120.0m-190.0m and stated that with this cash available to WH Smith, it could then further invest into its higher-growth travel division.
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