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Broker tips: Just Eat, Marshalls, Prudential
Goldman Sachs kept its 'buy' rating on Just Eat as it continued to include it in its Conviction List, saying the company's decision to invest in own its own delivery service "is the correct one".
Since the decision was announced, with the company's full-year results last month, the stock has dropped 16%, while compared to its February peak, it's now down around 20%. But GS said the move to invest in its own delivery service makes sense given the well-funded expansion of delivery-led operators.
"As long as Just Eat focuses on restaurants that are a natural extension of its marketplace offer (customer demographic, average order value), we believe UK delivery is unlikely to move beyond 5% of orders, with the highly profitable marketplace ensuring EBITDA margins remain above 50%.
"Despite downgrades to estimates post recent management guidance, we continue to see Just Eat growing top line and EBITDA at a more than 20% compound annual growth over the next three years, leaving valuation favourable versus European peers."
GS added that amidst the debate about delivery, it's important to remember that Just Eat is a marketplace company first and foremost and is likely to be for the forecastable future. "That marketplace is very successful, adding circa £70mn EBITDA in 2017 and growing 61% at the group level".
Marshalls is a well-run company in the right parts of the UK construction market, Berenberg analysts said as they gave the paving specialist's shares a 'buy' rating.
The company's results on 14 March showed revenue and profit rising despite the gloom elsewhere in the construction sector, the Berenberg team said. They attached a 510p price target to the shares, which were valued at 430p at the time of publication.
Fewer young people own their own homes than in 1996 but about 80% of those aged over 65's do compared to the 60% that did in 1996. These older consumers have paid off their mortgages and their children have left home, leaving them with money to spend on their homes - and they are Marshalls' customers, Berenberg said.
Marshalls ended 2017 with £24m of net debt, leaving room for investment in growth and acquisitions. It is too big in landscaping to buy more of those businesses and is, therefore, targeting water management, street furniture and mineral stone.
"Marshalls seems to be positioned in the right areas of the UK construction market and is really making the most of this," the analysts said. "More broadly, we continue to believe that management has positioned the business exceptionally well in recent years and we back management to do more of the same in the years ahead."
Analysts at Bernstein took a fresh look at life insurance firm Prudential on Thursday, reiterating their 'outperform' recommendation on the group's shares, as well as upping their target price as a result of some tweaking to its post-FY17 results estimates.
Bernstein said the sale of a portion of Prudential's UK annuity book to Rothesay and its decision to switch to a SOTP valuation framework, given the company's plan to list M&G Prudential separately, were the principal driving forces for upping its target price, noting that "excluding this", it would have modestly increased estimates on the London-based group.
"We have long felt that Prudential shares traded at a discount to SOTP, and management has long seemed to be happy to provoke SOTP debate but not particularly inclined to take any dramatic action that would crystallise the SOTP value. That has changed, as management's plan to list M&G Prudential separately from the rest of the Group has moved the SOTP debate from theory to reality.
"In recognition of this step we move to a SOTP valuation framework for Prudential, which results in our target price increase from 1950p to 2250p," read Bernstein's Thursday morning research note.
Edward Houghton and his team of analysts pointed out that while "much remains to be determined" at Prudential, as it stands, their overall sense was that the transition to SOTP valuation "is the most salient point" for Prudential's investors.