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Important information: The value of investments can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. This is a third-party news feed and may not reflect Fidelity’s views.

Broker tips: Asos, Bunzl

(Sharecast News) - Analysts at Deutsche Bank slashed their target price on clothing retailer Asos from 3,850.0p to 2,900.0p on Thursday, stating there were "a number of challenges" facing the stock's investment case. At this point, Deutsche Bank said both internal and external factors were weighing on Asos and noted that it sees earnings risk to the downside and valuation risk to the upside.

In the short term, the lack of a chief executive and a cautious tone to guidance suggested a greater risk of further negative earnings momentum at this stage.

The German bank highlighted that it was not clear what will drive a re-rating in a rising yield environment but said the absolute valuation at roughly 21x full-year 2022 earnings and an approximately 15x FY23e price-to-earnings ratio and 0.3x enterprise value/sales ratio was "attractive" on a 12-month view.

"We believe that Asos has a relevant consumer proposition with a large addressable market and will grow its earnings at a 20% CAGR 2023-25; once investors can look through the remainder of 2022, the stock should start to re-rate," said DB.

"Timing will be hard to call but we believe that the valuation already reflects much of the downside risk and therefore reiterate our 'buy' recommendation on a lowered 2,900.0p price target."

Analysts at Berenberg lowered their rating on business services outfit Bunzl on Thursday, stating the stock had gone from "one extreme to another".

Berenberg said Bunzl shares became "deeply oversold" and reached extreme levels of cheapness during the early stages of the Covid-19 pandemic. However, since then, it stated the group had emerged as "a relative winner".

The German bank, which also hiked its target price on the stock from 2,750.0p to 2,950.0p, said Bunzl firstly benefitted via its role in the distribution of personal protective equipment through the pandemic, and more recently as an inflation beneficiary.

As a result, Bunzl's shares have risen by roughly 26% since Berenberg upgraded the stock to 'buy' in July 2021 - up by 18% versus the market.

"The shares have now reached the opposite extreme in terms of market-relative valuation, and with the intensity of inflationary profit tailwinds likely to moderate from here, we see little more room for upside. As such, we downgrade our recommendation to 'hold'," said the analysts.

"A little under 19x P/E is not overly expensive relative to the sector, but in the current equity market climate, and given Bunzl's rather muted organic growth outlook, that looks quite fully valued."

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Important information: This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Past performance is not a reliable indicator of future returns.

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