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Broker tips: Whitbread, JD Sports, Dixons Carphone

By Iain Gilbert

Date: Friday 16 Oct 2020

Broker tips: Whitbread, JD Sports, Dixons Carphone

(Sharecast News) - Analysts at Berenberg upgraded their rating on hotel operator Whitbread from 'hold' to 'buy' on Friday, stating the current price of the stock left the group undervalued given its real estate portfolio.
Berenberg said that following Whitbread's recent weakness, it believes that the risk-reward balance on the company had shifted meaningfully.

The German bank thinks Whitbread's shares were now reflecting a 50% discount on its real estate and while it acknowledged that the stock traditionally traded on the operating performance of the business, it reckons that the real estate underpins the value and that the current level of discount was overdone.

Berenberg, which raised its target price on the stock from 2,400.0p to 2,500.0p as a result of a "slightly improved" cash burn, said its new price target also reflected a 40% discount and implied a 15% upside.

RBC Capital Markets upgraded its rating on JD Sports and Dixons Carphone on Friday.

Both stocks were lifted to 'sector perform' from 'underperform' with JD's price target upped to 825.0p from 735.0p and Dixons' to 100.0p from 75.0p.

As far as JD is concerned, RBC said it expects the UK to prove relatively resilient, due to higher conversion and stronger digital sales, while the US offers a strong self-help and recovery story.

The valuation is still fairly high but fair, RBC said, given JD's growth and the prospect of increased profit before tax guidance in January.

"In the UK we think JD is benefiting from strong consumer demand for sports fashion and footwear, its relatively balanced 50:50 interior/exterior facing store mix, and from its digital offer, which has performed better than expectations this year," it said.

Turning to Dixons, RBC highlighted its exposure to a strong UK household electricals market and its material international presence which is performing well, albeit with likely macro headwinds to come in 2021.

The bank said the valuation is reasonable, with consensus profit upgrades likely to be supportive in the near term.

"We think a sustained improvement in home-related retail spend is benefiting DC. DC generates around a third of sales from appliances, which should benefit from higher housing activity, and going forward home office equipment, TV, and gaming sales are likely to be strong, helped by console launches in November," it said.


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