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Broker tips: 888 Holdings, DS Smith, Marks and Spencer

Wed 08 September 2021 14:18 | A A A

No recommendation

No news or research item is a personal recommendation to deal. Hargreaves Lansdown may not share ShareCast's (powered by Digital Look) views.

(Sharecast News) - Analysts at Berenberg reiterated their 'buy' recommendation for shares of 888 Holdings, arguing that prospects for the online gambling group in the US remained undervalued.

That was especially so following 888's decision to launch its Sports Illustrated sportsbook in Colorado, which they said improved the two key core competencies needed to succeed in that market - brand power and access to customers.

Hence, they raised their expectations for market share in 50% of the US from 3% to 4%.

In turn, that raised the value per share attributable to the US opportunity from 60.0p to 70.0p.

As well, on the back of the company's improved guidance, they raised their estimates for 888's revenues and earnings before interest, taxes, depreciation and amortisation in 2021 by approximately 3% and 2.6% for the the 2021 financial year, respectively.

For subsequent years, they raised their EBITDA estimates by 2.6%.

Berenberg also labelled the company's latest interims "robust"m highlighting its "strong" topline growth and focus on product and technology.

Berenberg kept its recommendation for the shares at 'buy' while bumping up its target price from 460.0p to 470.0p.

Credit Suisse bumped up its target price for shares of DS Smith from 470.0p to 500.0p, as demand continued to surprise to the upside.

However, they kept their recommendation unchanged at 'neutral', arguing that the stock was changing hands at an undeserved premium.

On average, the Swiss broker revised its 2022-24 earnings per share estimates for the packaging specialist by 4%.

"We maintain our view that the market underestimates demand and, thus, the longevity of a positive pricing cycle," it said.

They also noted the "incremental growth opportunities", - beyond the near-term demand strength - from sustainable packaging as corporates review their strategies.

Credit Suisse also highlighted how strength in containerboard pricing was more than offsetting "soaring" old corrugated container prices, energy and transportation costs.

On the flip-side, at 8.9 times' the broker's estimated EV/EBITDA multiple for the firm in fiscal 2022, Credit Suisse said the shares were trading at a 9% calendar adjusted equity premium to better-performing peers.

"We do not view this premium as warranted considering weaker return profile and increased earnings volatility caused by recent, in our view, expensive acquisitions."

Barclays lifted its price target on Marks & Spencer to 215p from 210p on Wednesday as it said the retailer's recent trading statement was encouraging.

The bank noted that sales in both key segments were better than it had dared hope, and the positive profit commentary suggests that both gross margins and costs have developed "very satisfactorily".

"The consequent 18% profit before tax increase we assume for the current year is, of course, welcome, although we make much smaller increases for future years," Barclays said.

"We think that M&S continues to offer an attractive free cash flow yield (>9%, or >13% if we adjust for the Ocado JV stake) and that both core UK businesses offer margin potential."

Barclays pointed out that M&S has guided to Clothing & Home margins of more than 7% by 23/24, and said in the longer term there may be opportunities for Food to materially improve its logistics costs.

The bank reiterated its 'overweight' rating on the shares.

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