Share Prices & Company Research

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20 Jan 2021 | 15:00

Broker tips: Royal Mail, Travis Perkins, Randall and Quilter

(Sharecast News) - Deutsche Bank upgraded Royal Mail to 'buy' from 'hold' on Wednesday, highlighting a "complete change of outlook", as it hiked the price target to 550.0p from 320.0p. The bank noted that its 'sell' case on the stock between 1 December 2017 and 5 May 2020 was based on the fact it thought revenues, costs and cash flow would decline to a point that the dividend would have to be cut.

In addition, DB said the company's 'Journey 2024' targets, which included an implied operating profit target of about £600.0m in FY'24, were far too bullish.

It lifted its stance to 'hold' from 'sell' in May not because it could see the huge structural positives that Covid-19 would bring, but mainly due to buying pressure from Czech billionaire Daniel Kretinsky - Royal Mail's largest shareholder through his investment vehicle; a material short base; and the potential for the group to be broken up.

"We now think that RMG's earnings have been materially rebased upwards as there has been an acceleration of the structural shift towards eCommerce and parcels and that the group can now grow its earnings in the medium term," Deutsche Bank said.

Analysts at Canaccord Genuity raised their target price on builders' merchant and home improvement retailer Travis Perkins from 1,360.0p to 1,450.0p on Wednesday after tweaking estimates ahead of the group's full-year results in early March.

Canaccord now expects Travis Perkins to deliver "a modestly higher" 2020 second-half underlying profit outcome year-on-year, before paying back government monies received during the Covid-19 pandemic.

The Canadian bank, which maintained its 'hold' rating on the stock, said recent sector news-flow suggested that trading continued to be good right to the end of 2020 and that momentum into 2021 also looked "good".

"Looking into the second half of this year, the group may benefit from a successful rollout of the vaccine allowing life to return to closer to normality, a successful de-merger of Wickes with also the possible sale of P&H allowing it to focus on delivering growth and good returns from its core business," said Canaccord.

In such a scenario, Canaccord expects the trade-focussed, reshaped group to see general merchanting outperform the wider market and its Toolstation subsidiary to offer "very strong growth prospects" as a result of store openings, product range extensions and maturity of existing stores.

Barclays initiated coverage on shares of Randall & Quilter at 'overweight' on Wednesday, arguing the current price does not fully reflect the positive fundamentals of the company's equity story.

These include the Program business reaching an inflection point; the value of the recent Legacy deals completed; and the industry-wide opportunities that now present themselves across both divisions.

The bank set a price target of 251.0p on the shares as it noted it's "one of a handful of houses that cover this stock".
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