Broker tips: FeverTree Drinks, B&M European Value Retail, HomeServe

(Sharecast News) - Analysts at Berenberg lowered their target price on drinks maker FeverTree from 2,600.0p to 2,250.0p on Friday after the group lowered its full-year underlying earnings guidance. Berenberg noted that in the lead up to FeverTree's 2022 full-year results, the market had been "increasingly concerned" about its ability to manage cost inflation, with shares down roughly 40% over the course of the year.

The German bank, which reiterated its 'buy' rating on the stock, pointed out that in the end, management reduced full-year 2022 EBITDA guidance by approximately 9% at the midpoint, which was enough to bring "some relief to the shares".

However, while earnings were expected to be broadly flat this year, Berenberg said FeverTree's sales momentum remained "very strong" and it believes that margins can recover in time.

Credit Suisse downgraded discount retailer B&M European Value Retail to 'neutral' from 'outperform' on Friday and cut its price target on the stock to 600.0p from 675.0p, noting that the shares had consistently outperformed the UK retail sector over the past year.

The Swiss bank said that while discounters and food retailers should be defensive in the year ahead, B&M also has a large discretionary element to its range, a core customer which is going to be very squeezed by oil, gas and food prices, and demanding comps.

"Despite higher food inflation we cut our full-year like-for-like from 0% to -2% with gross margin down 200 basis points giving an c11% cut to 22/23 earnings per share forecasts, which are circa 7% below consensus," it said.

"It is hard to see scope for a re-rating before 1H 22/23 trading is clearer. FY results are on 31 May but the main upside risk is 1Q trading in early July exceeds our expectations."

Jefferies upgraded HomeServe to 'hold' from 'underperform' after Canadian property investment group Brookfield Asset Management announced on Thursday that one of its private infrastructure funds was in the early stages of considering a possible offer for the company.

The bank, which lifted its price target on the stock to 830.0p from 775.0p, said the announcement suggested the shares have reached a potential floor.

"Following a sustained period of underperformance the shares had moved though our previous underperform price target, which we feel was supported by weaker KPIs," it said.

Jefferies noted that HomeServe has underperformed the FTSE 250 by 30% over the past 12 months, driving it to trade around 10x EV/EBITDA, far below its five-year average of 15x and back to levels last seen during FY15.

"With FY22 consensus appearing better underpinned and a potential bid, we feel the magnitude for further downside may be more limited," it said.