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Broker tips: Spire Healthcare, BT, Beeks Financial Cloud

Tue, 4th Aug 2020 16:08

(Sharecast News) - Liberum upgraded its rating on Spire Healthcare to 'buy' from 'hold' on Tuesday, saying that while Covid-19 has effectively put the business "in deep freeze for 2020", the private hospital operator is set to benefit from a surge in NHS waiting lists.
It noted the fact the NHS suspended elective procedures in the UK as a result of the coronavirus pandemic.

"Spire was not spared but it has signed an agreement with the NHS whereby much of its costs are covered during this period that we expect to end in Q4," Liberum said. "The result is that even with this headwind Spire should exit 2020 with net debt increased by just 15%.

"But, demand will be stronger than ever: The exact timing of a return to normal operations is not easy to call but if the current situation persists for another two to three months the NHS waiting list could reach 10m or 2.5x December 2019."

Liberum expects Spire to play a key role in reducing this over the next two to three years and said this provides much greater visibility than it has ever had on revenue expectations.

It also argued that new management has built a much stronger operational platform over the past two years to meet this demand.

"With the shares off circa 40% since mid-Feb and the long-term prospects for the business as good as they've been for some time, we believe that now is the time to buy and upgrade our rating having been a hold for three years," Liberum said.

The broker trimmed its price target on the stock to 120p from 125p.

Berenberg upgraded its stance on BT to 'buy' from 'hold' on Tuesday, as it argued that sentiment towards the shares - which are now the worst in the telecoms sector year-to-date - should recover and that weakness represents a buying opportunity.

The bank said BT's pain is "significant but somewhat temporary", with the company hurt in four areas.

It noted that Openreach went further than other incumbents, ceasing in-home engineering work from March to May, while BT Sport suffered due to event postponements during the coronavirus pandemic and BT offering bill credits.

In addition, the enterprise division's wholesale and SME segments, which account for around 12% % of BT's revenue, are being hit by macro weakness, Berenberg said. Finally, it said the company's pension deficit is sensitive to real gilt yields.

"However, the first two of these are temporary, with in-home engineering now resumed and sporting fixtures restarted."

It said that while sentiment towards BT is "on its knees", one year ahead, BT will have just reported Q1 2021/22 results which should show revenue and EBITDA growth, including mid-single-digit growth in Openreach.

"With Openreach's capex/depreciation at circa 140%, its mean capital employed is growing (now £14.1bn but should be higher in a year) and with an ability to earn returns above weighted average cost of capital, we believe delivering mid-single-digit growth will strengthen investor belief that Openreach's valuation could approach £20bn, underpinning BT's valuation," it said.

Berenberg also argued the investment case should de-risk in other ways over the next year. It pointed to a pension agreement with similar payments to the current £907m per annum plan, with possible upside from an asset-backed contribution, and the renewal of Premier League rights for less than the current £325m a year.

The bank maintained its 130p price target.

Analysts at Canaccord Genuity reiterated their 'buy' recommendation for Beeks Financial Cloud following the company's pre-close trading update.

The provider of low-latency cloud services for financial services said the impact of Covid-19 on its fiscal fourth quarter had been relatively small and that its full-year results for financial year 2020 would be "within the range of market expectations".

Having been at the top end of the consensus range of estimates, the Canadian broker therefore now reduced its own forecasts. was their 150.0p target price.

Furthermore, they believed that the June quarter would prove to have been the toughest, given the almost complete lockdown conditions.

However, they also expected the first half of the 2021 financial year would be impacted.

"As with many other names in the sector, decision-making from some customers has understandably been delayed because of COVID-19 and lockdown."

Canaccord also kept its 150.0p target price for the shares.

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