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Broker tips: Moneysupermarket, RBS, Ashtead
Moneysupermarket was under the cosh on Tuesday as Barclays said a re-rating from here can only be justified if earnings per share growth returns to double-digit territory.
The bank, which kept its 'equal-weight' rating on the stock but trimmed the target price to 310p from 315p, pointed out that at 19x 2018 price-to-earnings, the shares are back to where they were before the new chief executive announced more investment in early March.
Barclays said the stock's current valuation "would suggest that investors have given them the benefit of the doubt in terms of growth improving in 2019 after a year of investment in 2018".
"To make 19x look cheap, we believe that more than 7% expected earnings growth in 2019 is needed. We don't see valuation as a reason to own this share outright until we get more confidence that a return to double-digit EPS growth is possible."
Barclays added that while a return to double-digit EPS growth is possible, this will be tough to achieve next year. As a result, the valuation is not particularly interesting value given that investors can buy Auto Trader on 21x, with the prospect of clear double-digit EPS growth even with cyclical headwinds.
"In our view, it is unlikely that numbers will move much through 2018 (we expect Q2 to be subdued with 5% revenue growth) and we expect the stock to be range-bound. If it creeps up to a low 20s P/E that looks clearly too expensive," the bank concluded.
Upcoming stress test results should trigger the release of a large amount of pent-up regulatory capital at RBS, analysts at Morgan Stanley said as they bumped-up their target price for the shares.
Also, continued growth in its retail arm and in mortgages was seen delivering a compound annual growth of 3% over the next three years, alleviating margin pressures, facilitating a strong margin build and therefore capital returns.
Together with the lender's existing room to manoeuvre when it comes to improving the efficiency of its capital structure, that should allow for a normal dividend payout of 40%, special dividends, and a £2.0bn share buyback programme.
Combined, their expectation was that those factors would drive total shareholder returns of 23% between 2018 and 2020.
Hence their decision on Tuesday to boost their target price for the shares from 315p each to 335p, while reiterating their 'overweight' stance on the same.
"RBS remains our preferred UK domestic name. The stock is trading on 9x adjusted earnings vs. the sector on 11.7x while offering one of the highest shareholder return profiles in Europe together with Lloyds and Nordic banks. We would regard an interim dividend as a show of confidence from the regulator and a catalyst for the stock," they said.
Analysts at Jefferies said equipment rental company Ashtead is continuing to play the long game, targeting growth and market share gains.
With Ashtead's fourth-quarter pre-tax profits coming in just 1% below expectations, Jefferies believed that the firm's yield, at flat year-on-year, was simply a factor of the business, given the company's maturity and point in the cycle, and that currently, with a lot of market share gain potential and further runway for volume growth, cannibalising its annuity growth with customers for aggressive rate rises would be unhelpful.
Jefferies said that despite the decline in the drop-through seen in Ashtead's rental revenue growth in the fourth quarter, that had been the result of a number of items, including some one-offs, while the fall in its Canadian margins at the EBITDA level was solely the result of one-off costs linked with the integration of its newly acquired CRS business in Canada.
Hence, it left its underlying assumptions "largely unchanged" even as it factored-in the recent tailwind from foreign exchange and slightly higher interest costs.
Looking ahead, the broker forecast rate rises of between 2%-3%, although yield was likely to still be a drag. For fiscal year 2019, the broker expected volume growth of 12% and yield improvements of 1% from its Sunbelt Rental wing.
All in all, Jefferies reiterated its 'buy' rating and 2,750p target price on Ashtead's stock, while over at Peel Hunt, analysts lifted their target price on Ashtead from 2,300p to 2,500p following the firm's "excellent" annual results.