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Barclays upgraded Premier Inn owner Whitbread to ‘overweight’ from ‘equal-weight’ on Friday, lifting the price target to 3,350.0p from 2,500.0p, arguing that it’s one of the most attractive recovery plays in the sector following this week’s vaccine news.
The bank said it now has a greater level of confidence that 2023 can see revenue per available room (RevPAR) back close to prior levels.
“Operating leverage is high, with every 1% change in RevPAR representing circa 6% to group earnings per share in 2022/23, so we upgrade EPS by 43%, leaving us 19% ahead of Bloomberg consensus,” it said.
“With growing confidence around a post-Covid future, we believe investors will increasingly look through the next six to 12 months to recovered earnings.”
Barclays said that importantly, unlike some other hotel groups, it reckons the recovery back to pre-Covid RevPAR for Whitbread could materialise on a two-year view.
This would come from market share gains, the relative outperformance of budget hotels during a recession, and relative shelter from a structural shift in business travel due to 90% domestic/50% leisure/100% budget exposure.
Credit Suisse upped Royal Mail to ‘neutral’ from ‘underperform’ on Friday, hiking the price target 261.0p from 94.0p as it said the UK outlook has been improved by pandemic-driven tailwinds.
Following new analysis of short-term parcel trends and early indications of letter and parcel revenue baselines beyond the pandemic, the bank raised its FY21 EBIT estimate from a loss of £337m to a profit of £169m and its FY22 EBIT estimate from £161m to £367m.
It highlighted a number of reasons why pandemic-driven tailwinds can support structurally higher earnings.
CS said analysis of Google Mobility data suggests that movement to retail venues normalised in Germany and the Netherlands in 3Q20, but that parcel tailwinds outweighed letter headwinds, suggesting revenue tailwinds beyond the pandemic.
Analysts at Canaccord Genuity raised their target price on business services group Grafton from 835.0p to 930.0p on Friday following the firm’s trading update from a day earlier.
Canaccord said Grafton’s trading update confirmed that the group was on track to deliver “a very strong second half”, with profits now expected to be “substantial higher” than previous guidance after having “clearly benefited” from strong demand in the RM&I and DIY market.
While the Canadian broker, which reiterated its ‘buy’ rating on the stock, acknowledged that UK traditional merchanting was “more subdued”, similar to peers, but also noted that Grafton had some “good businesses” to exploit areas of the market that were still currently strong.
“It is now evident that the group has enjoyed an impressive recovery from the first severe lockdown and looks to be trading well through the current lockdown,” said the analysts.
“We are increasingly confident that 2021 will be much closer to a more normal year in terms of sales and profits for the group but also understand the macro (including Brexit) and pandemic risks.”
