Broker tips: Pets At Home, Halfords, BM Bargains, EasyJet, IAG

(Sharecast News) - RBC Capital Markets initiated coverage of Pets at Home and Halfords on Tuesday, arguing that the former has a fairly full valuation, while the latter is "shifting up a gear".
The Canadian bank started Pets at 'sector perform' with a 450.0p price target, noting that it's the UK's leading specialist pet care business, with a share of around 24% of the UK pet care market.

"Whilst we think that PETS is a well-run company with a pragmatic c and achievable strategy, we think growth rates will likely moderate going forward," it said. "The shares have had a strong run over the last year and valuation prevents us from being more positive."

RBC started Halfords at 'outperform', also with a 450.0p price target, branding it "a leader in the UK motoring and cycling retail and services markets" and highlighting its exposure to "the more fragmented but growing autocentres market".

"We see opportunity for market share gains from its growing autoservices business and expect that its more integrated strategy should help to sustain some of the topline gains it has seen over the course of the pandemic."

Analysts at Berenberg raised their target price on discount retailer B&M Bargains from 600.0p to 625.0p on Tuesday after having delivered full-year results ahead of expectations, driven by a surge of demand in the last few weeks of the quarter.

While Berenberg noted the company benefited from Covid-19 pandemic-related demand tailwinds, it also believes it will be a post-pandemic winner, offering one of the "strongest top-line growth" and return on invested capital profiles in European retail and a cash-generative business that "should" support additional capital returns.

The German bank also stated that B&M's discounter business model was "well positioned" in a higher-inflation environment and thinks that the firm's recent share price fall despite "a robust set of results" creates "an attractive entry point".

"With rising input costs, we expect inflation to increase, and management reiterated that this would be the case. As outlined in our recent sector note on inflation (dated 20 May), we believe B&M's discounter business model is best positioned in the event of rising inflation," said Berenberg, which also reiterated its 'buy' rating on the stock.

"Furthermore, its growth, scale and strong supplier relationships provide scope to achieve strong terms in light of pricing pressures."

Goldman Sachs overhauled its European airline coverage on Tuesday, upgrading easyJet to 'buy' but downgrading British Airways owner International Airlines Group.

Looking ahead to the lifting of travel restrictions, the Wall Street bank said its preference was now for low-cost carriers over flag carriers.

It explained: "We forecast LCCs to be more profitable post-pandemic versus 2019, reflecting a fast volume recovery, lower industry capacity and a reduction in their cost base. The strong earnings growth we expect in the coming years leaves material valuation upside to normalised multiples."

The bank also reiterated its 'buy' rating on Ryanair and upgraded easyJet from 'neutral', sending shares in both stocks higher.

However, it continued: "For the flags, the high cash burn through 2020/21 implies enterprise values are at or significantly above pre-Covid peak.

"While we believe IAG is operationally well-positioned - Atlantic exposure, competitive short-haul brands, cost cuts - at the current EV we see this is better reflected to valuation and downgrade to 'neutral'."