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Broker Tips: Fevertree Drinks, Rio Tinto and Shell

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  • Brokers cut Fevertree Drinks target price
  • UBS, Credit Suisse, Berenberg and JPMorgan all trim Rio Tinto target price
  • Citigroup raises its target price for Experian
  • JPMorgan raises Shell target price
  • Jefferies downgrades Admiral Group

Brokers have reacted badly to a half-year trading update from Fevertree Drinks (LON: FEVR) last week, which warned that its profits would be affected by surging costs, labour shortages and supply chain problems. Two brokers have slashed their target price by as much as 71% (Jefferies, 900p; Deutsche Bank, 900p), while three have cut the price by about half (Peel Hunt, 800p; Bank of America, 950p; and Berenberg, 1,100p), with the most lenient being Goldman Sachs, which lowered its target price only by a third (1,150p). Jefferies and Deutsche Bank also downgrade the stock to ‘hold’ (buy) and Peel Hunt recommends ‘hold’ (reduce), while the rest leave their ratings unchanged (Bank of America, ‘neutral’; Berenberg, ‘buy’; Goldman Sachs, ‘neutral’). At close of trading in London yesterday, the stock was priced at 1,048p, a return of -61.3% YTD and -57.2% over 12 months.

Brokers have also piled onto Rio Tinto (LON: RIO), on reports of faltering economic growth in China, the largest market for copper, and of copper prices falling to their lowest level since November 2020. In a trading update, Rio Tinto talked of ‘considerable headwinds’, including a weak global economic outlook and a potential recession, affecting commodity prices. UBS cut its target price to 4,400p (4,550p), with a ‘neutral’ rating; Credit Suisse lowered its target price to 5,800p (6,000p), with an ‘outperform’; Berenberg trimmed its target price marginally to 4,100p (4,200p), with a ‘sell’; and JPMorgan also shaved its target price to 5,300p (5,420p), with a ‘neutral’ rating. At close of trading in London yesterday, the stock was priced at 4,707p, a return of -3.77% YTD and -18.2% over 12 months.

By contrast, brokers have taken a more positive view of Experian (LON: EXPN), the global information services company, reassured by its strong 1Q revenue growth, portfolio diversity and with its 2022 expectations unchanged despite the challenging macroeconomic backdrop. Citigroup raised its target price to 2,728p (2,665p), reiterating its ‘neutral’ rating; and RBC raised its target price to 3,000p (2,850p), with a ‘sector perform’. However, Barclays edged its target price lower to 3,250p (3,300p), maintaining its ‘overweight’ rating. At close of trading in London yesterday, the stock was priced at 2,780p, a return of -23.5% YTD and -8.8% over 12 months.

Among the oil majors, JPMorgan has raised its Shell (LON: SHEL) target price to 3,000p (2,850p) and reiterated its ‘overweight’ recommendation. The company is on track to deliver on an ambitious energy transition strategy to halve its emissions by 2030 (vs 2016 levels), a £25bn investment programme into the UK energy sector focusing on renewable infrastructure, all while also having the highest free cash flow yield among its peers, which is of particular interest to investors. At close of trading in London yesterday, Shell was priced at 2,034p, a return of 25.42% YTD and 49.6% over 12 months.

Jefferies downgraded Admiral Group (LON: ADM) to ‘underperform’ (hold), slashing the target price by a third to 1,525p (2,300p), on fears of accelerating claims inflation would eat into insurers’ margins and that Admiral’s profit commissions would reduce significantly. JP Morgan Cazenove also slashed its target price, by some 42% to 1,750p, reiterating its ‘underweight rating’, and Deutsche Bank trimmed its target price to 2,560p (2,630p), reiterating its ‘hold’ recommendation. At close of trading in London yesterday, the stock was priced at 1,729p, a return of -45.2% YTD and -47.2% over 12 months.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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