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Broker tips: Unilever, EasyJet
(Sharecast News) - Analysts at Deutsche Bank upgraded consumer goods company Unilever to 'buy' from 'hold' on Wednesday, stating prospects had now improved for the group. Deutsche Bank said commodity headwinds were now turning to tailwinds for 2023, which offered Unilever the potential for margin increases, while many other companies in the market will likely be seeing margins decline.
The German bank, which kept its 4,600.0p target price unchanged, also highlighted that whilst it was still early days, there appeared to be more commitment on behalf of Unilever's management to spend on advertising and promotion and research and development.
"We expect the market will be prepared to pay a higher multiple for a company that is more fully invested and with better compounding growth prospects than one which is trying to protect profitability," said DB. "A change in the commodity cycle can enable this change in stance (as well as support from a revised board)."
Analysts at Berenberg slashed their target price on low-cost carrier EasyJet from 750.0p to 560.0p on Wednesday but said the group's "messy" third-quarter performance had masked its "significant" deleveraging.
Berenberg said EasyJet had finished the third quarter of its trading year with net debt of just £200.0m, roughly 0.2x EBITDAR, down from approximately £350.0m back in summer 2019.
"This reduction in net debt, coupled with the share price's recent weakness leaves the carrier trading on an EV/IC of just 0.6x, slightly below where it troughed in 2008," said Berenberg.
Although the German bank acknowledged that EasyJet's handling of the June quarter had been "less than perfect", disruption at airports was now easing at the same time as the airlines' summer schedules become "more achievable" than before.
"Moreover, EasyJet's balance sheet is now in a strong position to weather a slowdown should one materialise, with liquidity of circa £5.0bn representing 15 months of Covid-19 cash burn on our estimates," said the analysts, who also reiterated their 'buy' rating on the stock.
"We cut our price target to 560.0p to reflect recent operational disruption and a slower profit recovery than expected before."
Reporting by Iain Gilbert at Sharecast.com
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