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Broker tips: Next, Inchcape
(Sharecast News) - Credit Suisse downgraded Next to 'underperform' from 'neutral' as it said the shares were likely to underperform stocks that look cheap versus history. The bank noted that Next shares had risen almost 50% from October lows, and argued that on 13.2x FY23/24 estimated price-to-earnings, they did not look cheap versus its history, retail peers, or the UK market.
"While Xmas trading was strong for most retailers, we see downside risk to demand in the spring, given tough comps, and as UK property prices and employment soften, while the outlook for opex remains challenging," CS said.
"With limited upside to valuation and strong execution already discounted, we downgrade our rating to underperform (from neutral) as we believe Next is likely to underperform stocks which look cheap versus history, offer greater leverage to a recovery or which can surprise in terms of execution."
CS added that it prefers outperform-rated Marks & Spencer, JD Sports, and Primark owner Associated British Foods but still lifted its price target on the shares to 6,100.0p from 5,200.0p.
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Analysts at Berenberg slightly raised their target price on automotive distribution, retail, and services company Inchcape from 1,035.0p to 1,085.0p on Friday following the group's acquisition of Derco.
Berenberg stated that Inchcape's now completed acquisition of Derco marked "a strategic leap forward for the group" as it "significantly" increased its exposure to the fast-growing Latin American market and favourably continues its shift towards distribution, which now makes up 93% of adjusted operating profits.
The German bank upgraded its forecasts for the deal, with 15.2% and 20.5% accretion to full-year 2024 and 2025 adjusted earnings per share estimates, respectively.
"Despite a circa £1.0bn price tag, pro forma leverage at the end of FY22 will be just 0.6x net debt/EBITDA, and we expect cash generation to drive deleverage to just 0.1x net debt/EBITDA by FY24 end," said Berenberg, which reiterated its 'buy' rating on the stock.
"On our new forecasts, the shares trade on just 10.3x FY23 P/E (5.9x EV/EBITDA), which we think is an attractive entry point to the story."
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