Broker tips: Burberry, Ryanair, BT Group

(Sharecast News) - RBC Capital Markets cut its price target on Burberry on Thursday to 1,200p from 1,500p as it reduced estimates ahead of the full-year results, which it said are unlikely to surprise positively. The bank expects soft revenue momentum in 4Q24 and forecasts a 14% decline in retail like-for-like sales.

"This is likely to drive operating deleverage and potential inventory provisions which creates downside risk to our £401m (below guide) EBIT estimate for FY24E," RBC said. "For FY25E, we anticipate fairly stable earnings year-on-year leaving little reason to be more positive for now.

RBC said it would like to see stabilisation of retail like-for-like sales, which could drive a re-rating in the shares, currently trading at a 16x price-to-earnings ratio.

The Canadian bank, which rates the shares at 'sector perform', cut its estimates for FY24 revenues by 2%, gross margins by 30 basis points to 68.4% and EBIT by 7% to £401m.

RBC Capital Markets also lifted its target price for budget airline Ryanair after upping its forecasts on the back of lower fuel cost projections.

The broker has raised its target for the shares from €24 to €25 and kept an 'outperform' rating on the stock.

Ahead of the carrier's full-year results next month, RBC has raised its earnings estimates by around 2% over the next two years to "reflect a reduction in fuel costs since our last update".

RBC is now forecasting adjusted diluted earnings per share of €1.66 in the year ended 31 March, rising to €2.23 for the current year, compared with the €1.25 reported last year.

"We see Ryanair as a relatively low-risk airline share, both due to its more certain/sustainable growth prospects and strong balance sheet, with a >€600m adjusted net cash position at FY2023/24E," RBC said.

"Low leverage arguably cuts both ways and leaves Ryanair less levered to the positive outlook which we see for European airlines. However, it also offers across-the-cycle attractions in a cyclical industry with limited earnings visibility. It also offers capital allocation optionality including the option to buy aircraft with cash rather than pay increased lease rates."

Shares of BT Group appear heavily undervalued and "ripe for a major re-rating", JPMorgan Cazenove said in a note on Thursday.

The bank, which rates the stock at 'overweight' with a 290p price target, said BT's equity story remains intensely debated.

"Despite having achieved a structural growth inflection, its shares continue to yoyo aggressively between £1-2/share, and are currently back at their lows," JPM noted. "Such volatility reflects uncertainties related to: (1) The company's growth prospects (nascent pricing power); (2) The competitive landscape (fibre altnet threat); and (3) The resulting post-fibre FCF outlook."

Against this backdrop, JPM argued that BT's new chief executive should consider providing mid-term guidance.

JPM noted that it will be several years before we have clear line-of-sight on BT's fibre returns and said mid-term targets would bridge the duration gap. In addition, it pointed out that most telcos (70%) now provide mid-term outlooks.

"BT is a rare exception - unhelpful for such a controversial stock, and a factor behind its wide consensus forecast range," it said.

JPM pointed out that BT has guided for Mar-28E capex and opex to fall £1.5bn as fibre spend rolls off. It said investors worry these savings will be "gross" not "net" and also noted that with visibility poor, BT's shares often "overreact" to results and news flow.