Broker tips: C&C Group, Redrow

(Sharecast News) - Shares in Bulmers and Magners maker C&C Group jumped on Tuesday after the drinks manufacturer delivered a "resilient" and "reassuring" underlying performance in the first half, according to Shore Capital. The broker reiterated its 'buy' rating and 132p target price for the stock, which was up 5% at 138.4p in afternoon trade.

C&C said it anticipated net revenue of €870m for the six months ended 31 August, marking a decrease of around 1% compared to last year.

It reported that considerable strides had been made in rectifying the disruption from its ERP system's implementation issues, which had been announced in May. Its 'On Time in Full' delivery metrics are now back to their levels before the ERP system was implemented.

"Adjusting for [the ERP issues], we estimate underlying operating is only modestly down year-on-year, which we see as encouraging given the challenging backdrop, especially around input pressures," Shore Capital said.

The stock trades at a price-to-earnings ratio (PER) of 18, and 8 times EBITDA with a free cash flow yield of 3%.

"Valuation metrics are notably inflated by the c€25m of one-off costs associated with the ERP implementation. Looking into FY25F, when these costs are expected to have unwound and underlying profitability starting to recover (albeit with a long way to go), we see a significant compression in valuation multiples (10x PER, 6x EBITDA and a 9% free cash flow yield), sharply below historic and peer metrics."

Berenberg has retained a 'buy' stance on housebuilder Redrow despite cutting its profit forecasts, saying the stock is one of the more "attractively valued" in the sector.

"We see compelling asset-backed valuation metrics, which underpin our positive view," said analyst Harry Goad. The stock trades at 12 times current-year earnings and 0.8 times tangible net asset value.

Redrow reported on 13 September that full-year volumes were down 5% at 5,436 while selling prices rose 3% to £383,000 - leaving revenue more or less flat year-on-year. However, modest margin erosion led to a 4% drop in pre-tax profit to £395m.

Goad said that the company has a "tough year ahead": "The group's June year-end meant that the FY23 result was relatively well insulated from the deterioration of the wider housing market, but the impact of this will be seen in the FY24 result."

For the coming year, Redrow is guiding to a pre-tax profit of £180-200m, implying a 52% drop year-on-year at the midpoint level. Berenberg itself is now cutting its profit estimates by 7% on average across the financial years ending 2024 to 2026.

Nevertheless, Goad pointed out that Redrow's balance sheet remains robust despite the challenging market backdrop. Net cash was £235m by the end of June, down from £288m a year before.