Broker tips: JD Sports, HSBC, Videndum

(Sharecast News) - Bank of America Merrill Lynch highlighted JD Sports' "superior market position" in a research note on Wednesday, which it said was not reflected in its current share price. "JD Sports is the largest sports lifestyle retailer globally and, in our view, offers best-in-class growth at a compelling valuation (9x CY24E for a 14% EPS CAGR over FY24-27E)," it said. "In addition, we think JD's drive to improve governance and investor communication over the past year should also attract a wider pool of capital."

The bank noted that JD Sports has underperformed its wider sportswear and retail coverage since August, which it sees as "an enhanced opportunity" to own shares. BofA, which maintained its 'buy' rating and 233.0p price target on the stock, said it remains confident the retailer can achieve its pre-tax profit and store rollout targets in FY24, and added JD has "several levers" to drive revenue and earnings growth.

"We see JD's attractive route-to-market for brand partners and modern experience for consumers as its moat to sustain a higher like-for-like growth profile than peers," it said.

BofA pointed out that the retailer aims to more than double its JD-fascia store count over the next five years, with the US making up around 40% of new stores. The bank also said it sees scope for small- to mid-size deals and minority take-outs to complement its organic growth forecasts.

RBC Capital Markets downgraded HSBC on Wednesday to 'sector perform' from 'outperform' and cut the price target to 775.0p from 825.0p as it said its shares were looking more fair value.

The Canadian bank noted that HSBC has outperformed UK bank peers by 31% year-to-date, but said now was a good time to take profits.

"Earnings momentum looks to have turned and an improved capital distribution profile is now reflected in consensus," it said. "Therefore, with the shares looking more fair value, we downgrade our rating."

RBC said rates are expected to fall by around 190 basis points weighted across HSBC's core geographies over the next two years, broadly equivalent to a headwind of around $5.0bn. It added that the headwind from lower rates will be partially offset by balance sheet growth, but that was unlikely to be anything "remarkable" about over the next two years.

Analysts at Berenberg slashed their target price on TV software and hardware maker Videndum from 1,055.0p to 500.0p on Wednesday following its completion of a fully underwritten £125.0m gross equity raise a day earlier to reflect the group's latest trading and the impact of the equity injection.

Berenberg said there was a "somewhat unique confluence of short-term pressures" - such as writers' and actors' strikes in the US, original equipment manufacturer de-stocking, and low business and consumer confidence - had weighed heavily on full-year earnings for the group, and affected trading for longer and by more than originally expected.

However, from here, the German bank stated a fixed balance sheet, management action and expectations of end-market recovery into FY24 and FY25 mean that it thinks Videndum's shares look attractive on valuation grounds, leading it to reiterate its 'buy' rating on the stock despite significantly lowering its target price.

"We move our price target to 500.0p (from 1,055.0p), reflective of circa 50% equity dilution from the raise and increased conservatism in our outer-year forecasts, balanced with the now reset balance sheet. While we remain mindful of OEM de-stocking in certain channels and wait for full clarity on the shape and speed of the recovery now that the US strikes have ended, we view Videndum as a longer-term winner into normalising end markets. At our new price target, the shares would trade on 17x FY24 P/E (12.7x EV/EBIT) or 13.5x FY25 P/E (10x EV/EBIT)."