Broker tips: Reckitt, Ocado, Learnings Technologies

(Sharecast News) - Analysts at Berenberg raised their target price on consumer goods company Reckitt Group from 7,575.0p to 7,840.0p on Thursday, stating the earnings upgrade cycle persists. Reckitt posted group like-for-like sales growth of 7.9% on Wednesday, which was well ahead of visible alpha consensus forecasts of 3.6% - mainly driven by its health and nutrition divisions. At the group level, like-for-like growth was driven by pricing of 12.4% and volume of -4.5%.

Berenberg said this was "an impressive start to 2023" and that, as a result, management "sounded more confident" about the group's growth outlook for the rest of the year, particularly for its nutrition division.

The German bank also highlighted that an anticipated normalisation in consumer mobility in China raised prospects for a better performance by Durex and Dettol.

"Our investment thesis on Reckitt is unchanged; we remain confident that execution is improving and the stock offers attractive value considering the company's medium-term growth profile, which is comparable to that of peers such as P&G, Nestlé, and Colgate-Palmolive," said Berenberg, which stood by its 'buy' rating on the stock.

Deutsche Bank initiated coverage of Ocado with a 'hold' rating and 550.0p price target on Thursday as it said the risk/reward is currently balanced.

DB said that once a pure online grocery player, Ocado has evolved into a prime technology provider for some of the leading grocers worldwide.

"It is using its retail division to showcase its strength in technology solutions for potential third-party supermarket customers wanting to automate their operations while also operating an adjacent logistics business," DB said.

"With its best-in-class technology, the company is rising penetration rates of online grocery shopping and benefits from the need of large supermarket chains to automate customer fulfilment centres (CFCs) in order to improve efficiency and not miss out on customer acquisition in the online space."

DB noted that within its technology solutions division, Ocado has so far partnered with 10 international grocers and has 45 CFCs in the pipeline.

However, Deutsche Bank said that against that, it expects the current macroeconomic backdrop to weigh on the retail section for a little longer, and at the current share price, it sees the risk/reward as balanced.

Analysts at Canaccord Genuity lowered their target price on software firm Learning Technologies from 140.0p to 120.0p on Thursday, stating its macro strategists believe an already "challenging" macro environment could further deteriorate this year.

Canaccord Genuity said this raises the possibility of further revenue/estimate cuts from Learning Technology as only around a quarter of its sales were contractually recurring, whilst the remainder comes from more discretionary learning and training content production and consulting, as well as HCM software implementation services funded by HR and IT budgets.

From an industry perspective, the German bank also highlighted that close to 60% of sales were to "more macro-sensitive verticals" such as automotive, manufacturing, financial services, consumer, retail, and logistics/transport.

Reflecting management's new underlying earnings outlook of "high-single-digit growth" and higher interest costs and tax, Berenberg cut its 2023-24 revenue forecasts by roughly 1% and adjusted underlying earnings expectations by 10-13%.

"After the strong GPS accretion uplift last year, our downgraded forecasts imply broadly flat adjusted earnings per share (pre SBC) of circa 9.0p this year with an expected growth acceleration in 2024+ driving an 8% 2022-25E EPS compound annual growth rate," said Canaccord, which reiterated its 'hold' rating on the stock.

"In light of the muted growth and demand visibility, we view the shares' current 12.0x 2023E price-to-earnings multiple as fair."