Broker tips: Virgin Money UK, Taylor Wimpey, On the Beach

(Sharecast News) - Analysts at Berenberg raised their target price on lender Virgin Money UK from 170.0p to 195.0p on Monday but cautioned that "relative challenges" may worsen.

Berenberg said Virgin Money's recent growth has exceeded both consensus and its own expectations but warned that the strength is likely to be only temporary, due to refinancing activity, but has supported better near-term revenues.

"We, nevertheless, remain concerned that the bank's deposit mix will constrain its net interest margin as interest rates rise (which is well understood) and exacerbate volume headwinds (which is less well appreciated)," said the analysts.

The German bank stated that while Virgin's shares were "cheap", trading on 6.2x its full-year 2024 earnings per share estimates, it believes that these headwinds will lead to lower growth and returns than UK peers.

"As a result, we believe that Virgin Money may struggle to re-rate materially," said Berenberg, which also reiterated its 'hold' rating on the stock.

Barclays also downgraded Virgin Money on Monday to 'equalweight' from 'overweight', citing its strong share price performance over the last six months.

Liberum downgraded Taylor Wimpey on Monday as it took a look at the UK housebuilding sector.

The broker said shares in the sector had started 2023 well, now up 38% from lows, after rising 18% in the year to date as the macro-economic outlook has improved.

Liberum said it still sees upside across the sector, but was becoming a little more selective. It downgraded Taylor Wimpey to 'hold' from 'buy' on valuation grounds after the shares' outperformance, and kept the price target at 125.0p

Liberum said its preferred stocks were Bellway, MJ Gleeson, and Vistry.

Analysts at Canaccord Genuity raised their target price on online holiday retailer On the Beach from 193.0p to 248.0p on Monday, stating the group's move to premium offerings was starting to "pay off".

Canaccord highlighted that On The Beach's "strong update" last week indicated that trading at the start of the year had been "robust", exceeding expectations, with total transaction value up 68% year-on-year and revenue growth likely to be similar.

"With consensus estimates for FY23 expecting revenue growth of circa 10%, we believe FY estimates are well underpinned; however, it remains early in the booking window," said the analysts.

In the Canadian bank's view, On the Beach's move to premium product was starting to pay dividends, yet it also noted that there remains "much more to go now" the group has "a significantly greater" total addressable market and "arguably less competition".

But that aside, Canaccord said the move to premium should help re-rate the stock given higher levels of visibility.

"On The Beach trades on an FY23E PER of just 14.2x and EV/EBITDA ratio of just 5.6x, with an FCF yield of 7%," said Canaccord, which reiterated its 'buy' rating on OTB's shares.