Broker tips: Hays, Softcat, Vodafone, BHP

(Sharecast News) - RBC Capital Markets cut its price target on Hays on Friday after the recruiter said a day earlier that full-year profit was set to be around the bottom end of the market consensus range of £106m to £113m as it posted a drop in fourth-quarter net fees.

In an update for the three months to the end of June, the company said group net fees declined 15%. Fees were down 17% in the UK and Ireland, 22% in Australia and New Zealand and 17% in Germany. Meanwhile, rest of world fees were 11% lower.

"Reflecting the increasingly challenging trading conditions as fiscal Q4 progressed and management's latest prognosis for near-term profitability, we lower our FY24 and FY25 EPS estimates by 6% and 36% respectively," RBC said.

In turn, the Canadian bank reduced its price target on the stock to 125.0p from 130.0p but reiterated its 'outperform' rating as it said it still sees an attractive longer-term risk-reward profile.

"On a through-cycle basis, we expect meaningful shareholder returns via special dividends, albeit on our current estimates, we assume no specials will be proposed for FY24 or FY25," RBC said. "We believe HAS looks attractive versus history on the EV/net fees metric in particular, which has historically helped to put a 'floor' under the share price."

Shore Capital has moved its rating for Softcat back to a 'buy', just two weeks after downgrading the stock, following a big share-price decline at the IT infrastructure group.

Since cutting the stock to 'hold' on 25 June, the stock has dropped 13% and now lies 21% below Shore Capital's fair-value estimate of 1,950.0p - a decline which the broker called "overdone".

"Softcat has shown remarkable consistency in meeting or beating market expectations (never had a profits warning since IPO in 2015)," Shore Capital said.

The broker pointed out that Softcat has had an "excellent track record of growth", a consistently growing customer base, continued market share gains, and strong execution on customer service, value-for-money and employee engagement. It also has a proven "land-and-expand" ability to upsell to existing customers.

Meanwhile, AI has the potential to grow the business further, according to Shore Capital, noting that Softcat was already beginning to see the potential for an "all-encompassing" impact across both infrastructure and applications, starting to build this year.

Citi has maintained a 'neutral' stance on Vodafone ahead of the telecoms group's first-quarter results in two weeks, saying that the top-line moderation in two key markets could keep a lid on growth.

The bank reiterated its 70.0p target price for the shares ahead of results on 25 July, in which it expects to see just 1.5% service revenue growth, down from 3% in the fourth quarter.

After exiting two of its most challenging markets (Italy, Spain), Vodafone's equity story has materially simplified," said analysts.

"Having said that, however, continuation of FY24 growth trends in two of its key remaining markets could be challenging as Vodafone weather through the cable TV un-bundling in Germany and see lower pricing support in the UK."

Citi acknowledged that the stock was "cheap with appealing yield and technical support from buybacks". However, online pressure from German cable un-bundling was likely to dominate momentum and limit share-price upside in the near term, until around the third quarter.

Analysts at Berenberg lowered their target price on mining giant BHP from 2,100.0p to 2,000.0p on Friday after the firm provided the market with clarity on the futures of its West Australian nickel business.

Berenberg, which stood by its 'hold' rating on the stock, noted that BHP's nickel business had been in focus due to its negative underlying earnings and free cash-flow performances - a function of weak nickel prices due to Indonesian oversupply and weak demand due to delays in the energy.

"Following an asset review, BHP will transition the operations to care and maintenance from July 2024, suspend operations from October 2024 and move to full care and maintenance by December 2024," noted Berenberg.

BHP has flagged that the nickel business will report an underlying loss of roughly $300.0m in FY24, better than the German bank's forecast $356.0m loss, and that it will take a $300.0m pre-tax impairment on the asset. BHP also guided to care and maintenance costs of approximately $300.0m per year, which includes exploration and take effect from January 2025.

"We update our model to incorporate the nickel operations being placed on care and maintenance, push out West Musgrave to commence operations in H2 CY28 and roll forward our NAV to FY25. The impact is a small increase to our future estimates given our expectation that the operations were loss-making," said Berenberg. "The stock is trading on 1.3x NAV and 5.4x EBITDA."