Broker tips: Impact Healthcare, EasyJet, Drax

(Sharecast News) - Analysts at RBC Capital Markets slightly lowered their target price on real estate investment trust Impact Healthcare from 125.0p to 120.0p on Tuesday as it reduced its earnings forecasts following the trust's recent trading update.

RBC Capital stated it had reduced its full-year earnings per share estimates by 9% to reflect an implied EPS of 7.06p, saying it believes much of the difference has been driven by lower than expected rental income, partly as a result of a slower pace of acquisitions.

The Canadian bank kept its full-year 2023 dividend forecasts as they were but made "limited changes" to future DPS forecasts, driven by rent/indexation. Dividend cover was forecast to fall from 128% to 111% but remain" consistently over 100%" for all forecast years.

RBC added that news of overdue rent was a first for Impact, but said it appears unlikely to indicate "a significant negative impact" on EPS to come.

"Our underlying EPS forecasts differ from management's adjusted EPS. We include the amortisation of loan arrangement fees in our underlying EPS. We forecast 7.08p and 7.48p of adjusted EPS as defined by management for 2022 and 2023 respectively," said RBC, which reiterated its 'outperform' rating on the stock.

Analysts at Deutsche Bank double upgraded their recommendation for shares of EasyJet from 'sell' to 'buy' on the back of what they said had been a "dramatic" improvement in the outlook for the UK economy in 2023.

"The UK economic outlook has 'improved dramatically," said Deutsche Bank. "We see this as positive for EasyJet, the airline we cover which we think has greatest exposure to the UK (roughly 40% of pre-Covid profit)."

One of the key pillars of DB's caution towards EasyJet in mid-December had been the economic outlook, added the firm, which also lifted its target price on the stock from 410.0p to 580.0p.

JPMorgan Cazenove lifted its price target on Drax from 850.0p to 900.0p on Tuesday and said the stock remains on its "Positive Catalyst Watch" going into the electric services company's results later in February.

The bank, which maintained its 'overweight' rating on the stock, noted that Drax shares were trading in line with early December 2022 levels despite having since seen a strong trading update and a significant improvement to the government's proposed Electricity Generation Levy.

"Looking further back, Drax shares are only up 6% since the start of 2022 despite the materially higher power price outlook post Russia's invasion of Ukraine, and material EBITDA and EPS upgrades, even after windfall taxes announced in 2022," it said.

JPM pointed out that the shares were down 10% year-to-date on a lower commodity outlook and said it considers this an overreaction in a context where the market did not price in the value of higher power prices to begin with.

"Drax remains a top pick and we keep the company on Positive Catalyst Watch into FY22 results (February 23)," said JPM. "We expect strong guidance on EBITDA for 2023 and see further catalysts in 2Q23 (publication of UK Biomass Strategy, and a potential update from the company on US BECCS)."