Broker tips: Boohoo, Hilton Food, B&M, M&G

(Sharecast News) - Liberum said on Friday that fast-fashion retailer Boohoo "will struggle to reinvigorate growth" even after the opening of its new distribution centre in the US. The broker - which rates the shares at 'sell' with a 35.0p price target - said that while Boohoo was confident of achieving pre-pandemic growth and margin rates, it was less convinced.

"The group has not gained much share of the UK online clothing market in the last three years and has clearly lost massive ground to Shein in the US and to online marketplaces in Rest of Europe," Liberum noted.

"Given the ground already lost to Shein and plans to open further local distribution centres in the US, we think Boohoo will struggle to reinvigorate growth even after the opening of their new DC (or at the least the growth could be rather costly)."

Liberum forecasts negative free cash flow until FY25, hence why the shares look "optically cheap" at only 0.4x EV/sales and 9x EV/EBITDA.

"With no FCF or dividend support, diminished prospects in its markets and lack of visibility on the scalability of its newer brands, we believe there is better value elsewhere for now," it said.

Analysts at Berenberg lowered their target price on food manufacturer Hilton Food Group from 850.0p to 790.0p on Friday after the company's seafood unit fell short of its quota.

Berenberg highlighted that Hilton Food's trading update on Tuesday indicated that its seafood business, which makes up roughly 10% of revenues, was set to deliver "a softer performance than initially expected".

The German bank noted that Hilton's seafood division did not have the same cost pass-through mechanisms as its core processing business, and slower progress renegotiating pricing with customers had now caused it to deliver its second profit warning in as many months.

"While visibility is low and investor confidence is dented, these challenges are not unique and its valuation remains attractive, in our view," said Berenberg, which maintained its 'buy' rating on the stock but lowered its price target in order to reflect a lower earnings track and a higher risk premium.

Analysts at Deutsche Bank raised their target price on retailer B&M from 395.0p to 415.0p on Friday as it cautioned investors not to "ignore the margin elephant in the room".

Deutsche Bank said B&M management "came out fighting" with regards to the acceleration in like-for-like trading, "robust" cost management continuing and the recovery in gross margins in the second half of 2022.

However, DB noted that B&M's shares had been marked down by roughly 5% in a strong market as it chose to ignore "some of the big elephants in the room" relating to the 2024 trading year - including utility and other cost pressure and the hedged rates on FX and freight and when these roll off.

"In the short term we think the sales and margin trajectory appear robust as we head into peak and we raise our adjusted EBITDA by 8% to £561.0m and back into their maintained guidance range (£550.0m-600.0m)," said the analysts, who stood by their 'hold' rating on the stock.

"This higher base sees a flowthrough into FY24e but only sees a circa 3% upgrade to £495.0m (from £479.0m) as we think the better-than-expected gross margin achieved in FY23e will see a deferral of pressure into FY24e although we remain circa -10% below consensus."

Analysts at Jefferies initiated their coverage of M&G at a 'buy', telling clients that the firm's projected surplus capital generation and Solvency II ratio provided its new boss with a variety of options.

The investment manager was estimated to generate £2.7bn of surplus capital between 2022-24 while its solvency ratio stood at 235%. That meant that the new chief executive officer's options ranged from liability management, including debt calls, and share buybacks to more radical alternatives, such as entering the bulk annuity market.

Nevertheless, Jefferies' forecasts still called for a reduction of £600.0m in M&G's debt pile and cumulative share buybacks to the tune of £200.0m over the next two years.

On the flip-side, entering the bulk annuity market could further enhance the long-term security of the dividend, added Jefferies, which also set an initial 235.0p target price for the stock.