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Broker tips: WH Smith, 888 Holdings

Thu 30 September 2021 15:08 | A A A

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(Sharecast News) - Analyst at Berenberg raised their target price on retailer WH Smith from 1,500.0p to 1,750.0p on Thursday, stating it was positive on the group's long-term prospects.

Bernberg said it continues to believe that WH Smith is "a great business", with ample opportunities to grow, the ability to generate a good return on capital and has been well managed over a long period of time.

However, the German bank reckons that, at current levels, the valuation already appears to be pricing "a significant amount of this in" and it does not think that there is an abundance of near-term catalysts to move this forward.

"Over the last decade, WH Smith has managed to hold earnings broadly flat in High Street, despite declining like-for-like sales. However, we believe that it will struggle to achieve the same in the coming years, with gross margin improvement slowing and cost savings harder to generate," said Berenberg, which also reiterated its 'hold' rating on the stock.

Berenberg added that the Covid-19 pandemic had accelerated the shift from high street to online shopping, which could add to WH Smith's difficulties but also highlighted that they continue to believe that the WH Smith's Funky Pigeon online card and gifting business, held within its high street division, was an "under-appreciated asset", with sales up 44% in the 12 months ended 31 August and underlying earnings of £12.0m.

Analysts at Canaccord Genuity hiked their target price on gambling firm 888 Holdings from 510.0p to 690.0p on Thursday, stating the group was now "off to the races".

Canaccord Genuity believes 888's acquisition of William Hill International will be "transformational" in terms of earnings but also strategically.

The Canadian bank, which has a 'buy' rating on the stock, thinks the enlarged group will gain leading positions in key regulated markets as a result of the acquisition, with "a diversified product mix" and "enhanced scale to drive future growth".

Canaccord also said significant cost synergies of at least £100.0m had been identified by 888 across a number of areas, which will help to drive "improved profitability and margins".

"Consolidation has played an important role in the market in recent years and this transaction helps to strengthen 888 competitive position, albeit the increased scale and proprietary tech platform will also likely make it more attractive to a larger industry player looking to participate in further consolidation," said the analysts.

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