Wednesday 14:00 BST
What’s happening
● Barratt Developments faded on full-year results from the housebuilder that provided few surprises.
Profit, net cash and the dividend had already been reported in a July trading update so the focus was on cautious guidance for completions, which Barratt said would be at the lower end of the 3 per cent to 5 per cent medium-term target. Barratt also tempered expectations for current-year net cash to reflect tax, land purchases and a reduction in creditors.
Peel Hunt downgraded Barratt from “add” to “hold” in response.
“While there is plenty of uncertainty being caused by domestic politics it doesn’t seem to have had a major impact on recent sales reservations. The shares have had a great run in the year to date, comfortably surpassing peers due to a better margin performance. As a result the shares are now trading on a modest premium to the sector which looks about right.”
Peel Hunt
● Dunelm retreated from an opening gain to lead the FTSE 250 fallers after a cautious outlook overshadowed in-line results. The soft furnishings retailer said full-year profit before tax was up 23 per cent, matching guidance given in a July trading update. But management cautioned over political uncertainty surrounding Brexit, drawing a parallel to tough trading around the 2016 referendum, and highlighted that the October 31 deadline to leave the EU was in the run-up to its peak winter season.
While consensus forecasts were not changing, Dunelm’s premium rating looked vulnerable given like-for-like sales were likely to normalise from 10.7 per cent on average in the last financial year, said analysts. Morgan Stanley highlighted that, assuming earnings per share of 51.9p in the current year, Dunelm had been trading in excess of 16 times calendar 2020 earnings in a UK retail sector valued at 12.6 times earnings.
● Prudential led the Hong Kong-reliant stocks higher after the territory’s chief executive Carrie Lam formally withdrew an extradition bill that sparked three months of unrest in the city. Standard Chartered and luxury goods makers including Kering, LVMH and Burberry also gained.
Sellside stories
● Société Générale upgraded GlaxoSmithKline from “sell” to “buy” with a £22 target price.
“We’ve liked all the management and capital-allocation changes that new GSK chief executive officer (Emma Walmsley) has made during her first two years at the helm. But we have delayed upgrading our rating until now, as we wanted to see clear evidence of improving (internal and external) innovation within GSK’s unloved pharma business. After more than a decade of underperforming research and development productivity, we now expect five high-profile phase 3 assets to release results over the next three to four years. This pipeline progress means that we now forecast the group (both including and excluding the consumer business) to deliver above-average sales growth from 2023. We thus believe that a premium valuation is finally warranted.”
SocGen
● Stifel downgraded IQE, the semiconductor materials maker, from “buy” to “hold” with a 50p price target.
Near-term headwinds have resulted in a broad-based drop in demand that, because of IQE’s high leverage, have had a severe effect on margins, profit and cash generation, Stifel said. It highlighted that IQE’s recent first-half results missed expectations again, with trading profit £2m short of a consensus at £7m.
The broker suggested waiting until 2020 or beyond to see if there was any abating of sales headwinds including weak smartphone demand and inventory destocking. Apple’s unveiling of new iPhones next month may be a catalyst if there is an upgrade to 3D sensing technology, which uses IQE-sourced wafers, but annual pricing declines would offset any increased demand, said Stifel.
● In brief: Akzo Nobel rated new “sell” at Berenberg; Antofagasta cut to “sell” at Deutsche Bank; Aperam raised to “buy” at Merrill Lynch; Assura cut to “hold” at Panmure Gordon; BHP raised to “hold” at Deutsche Bank; Bankinter raised to “neutral” at UBS; Basler rated new “buy” at Jefferies; Beazley cut to “hold” at Canaccord; Boliden raised to “buy” at Deutsche Bank; Computacenter cut to neutral” at UBS; Direct Line raised to “hold” at Canaccord; Eni cut to “neutral” at Credit Suisse; Equinor raised to “outperform” at Credit Suisse; Hiscox raised to “hold” at Canaccord; IP Group raised to “hold” at Jefferies; Isra Vision rated new “buy” at Jefferies; Lenzing raised to “hold” at Berenberg; Pharnext cut to “reduce” at Kepler Cheuvreux; Sabre Insurance raised to “buy” at Canaccord; Suez raised to “hold” at Société Générale; Talgo raised to “buy” at Kepler Cheuvreux; Telecom Italia raised to “hold” at Berenberg; Teleperformance raised to “outperform” at Credit Suisse; Veolia raised to “buy” at Société Générale; Wereldhave cut to “hold” at Kepler Cheuvreux.
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