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Broker Tips: Next, Boohoo, Drax, SSE and ConvaTec

  • Jefferies initiates coverage of ConvaTec with ‘buy’
  • Panmure cuts Boohoo to ‘hold’
  • Barclays raises Drax target price to 1,000p
  • RBC upgrades SSE to ‘outperform’
  • Panmure cuts Next to ‘hold’

Jefferies has initiated coverage of ConvaTec LON:CTEC with a ‘buy’ rating and a target price of 300p. ConvaTec, a medical products and technology group, on 10 November reported “sustained good sales growth” and revised up its guidance for 2022 organic revenue growth to 5.4-5.8% from 4.0-5.5%. Looking ahead, Convatec said “inflation in raw materials and freight had moderated in recent months” and expected to deliver profit margins of at least 18%. Barclays instead has trimmed slightly its target price to 290p (295p) and reiterated its ‘overweight’ rating. At close of trading yesterday, the stock was priced at 231.20p, a return of 21.6% YTD and 9.7% over 12 months

Panmure has cut fast-fashion retailer Boohoo Group LON:BOO to ‘hold’ (buy) with a target price of 120p. Liberum cut the stock to ‘sell’ early in the month, saying the retailer “will struggle to reinvigorate growth”, having failed to gain much market share in the UK and lost out to online rivals in the US and Europe. Headwinds that the company is facing include higher costs and strong competition from Chinese retailer Shein, while the need to invest in marketing and service could delay profit delivery “for longer than expected”. Goldman Sachs cut Boohoo to ‘neutral’ (buy) and lowered its target price to 55p (60p). At close of trading yesterday, the stock was priced at 38.8p, a return of -68.5% YTD and -78.5% over 12 months.

Barclays raised the Drax LON:DRX target price to 1,000p (820p), with an ‘overweight’ rating, saying that UK utilities offered “compelling value”, now that the energy windfall tax had been announced. The broker described the 45% levy on excess profits above £75/MWh as a “better than worst case”, adding that “with clarity, Centrica, Drax and SSE should re-rate”. Other brokers agreed, raising their target prices: Credit Suisse to 625p (570p), with a ‘neutral’ rating; and RBC to 1,050p (950p), with an ‘outperform’. At close of trading yesterday, the stock was priced at 626p, a return of 3.5% YTD and 7.2% over 12 months.

RBC also upgraded energy provider SSE LON:SSE to ‘outperform’ (sector perform) and raised the target price to 2,050p (1,825p). The broker was reassured that after a period of turbulence caused by the energy crisis and other macroeconomic challenges, SSE “now have greater clarity on windfall taxes”. From an investor’s point of view, SSE offers “an attractive business mix and long-term growth prospects aligned to the energy transition”. The broker consensus last week was mostly positive: Deutsche has a ‘buy’ rating (1,900p), but Citigroup is ‘neutral’ (1,664p), while Barclays (1,835p) and JP Morgan Cazenove(2,100p) both have an ‘overweight’ rating. At close of trading yesterday, the stock was priced at 1,723.5p, a return of 5.9% YTD and 8.6% over 12 months.

Panmure has cut Next LON:NXT to ‘hold’ (buy) with a target of 6,800p, after the retailer agreed earlier in the month to buy out of administration for £3.4m. However, RBC is more positive on the stock’s prospects, raising the target price to 6,000p (5,600p), with an ‘outperform’ rating. Goldman Sachs seemed to agree, raising its target price to 6,150p (5,600p), with a ‘neutral’ rating. Russ Mould of AJ Bell believes Next has “the scale, experience and retail savvy” to turn into a successful and lucrative brand.” At close of trading yesterday, the stock was priced at 5,702p, a return of -29.9% YTD and -30.3% 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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