Friday 14:00 BST
● Beyond Meat hit a record high after raising full-year guidance, giving it a threefold gain since its Nasdaq float last month.
The vegan burger maker lifted what management called a “very conservative” year-end sales target to at least $210m, suggesting growth of 140 per cent from 120 per cent previously, and predicted reaching earnings break-even before interest, tax, depreciation and amortisation. Maiden results from Beyond Meat were modestly ahead of forecasts, with first-quarter sales of $40.2m — up 215 per cent year on year.
JPMorgan raised its target price on Beyond Meat to $120 from $97 and repeated “overweight” advice. Consensus forecasts have failed to reflect the “extraordinary revenue and profit potential” offered by Beyond Meat, it said.
“We understand why current valuation metrics spook many investors, and we want to respect the limits to Beyond Meat’s potential. Nothing grows forever. But the guidance in today’s press release, as well as the extremely positive tone from management on the call and afterwards in our follow-up, give us reason to believe the story still has legs.”
Credit Suisse put a $125 target on Beyond Meat, up from $70 previously, but kept a “neutral” rating. It saw as “hugely important” evidence of Beyond Meat products delivering same-store sales growth for Burger King and diner chain A&W Restaurants, “because it means that the brand is driving same-store foot traffic rather than just cannibalising existing sales”.
Beyond Meat excludes from its guidance customers that are only in the test phase, Credit Suisse also highlighted. “We expect revenue guidance to keep revising higher this year as the big chains like Tim Horton’s transition out of test and into full market distribution. We now expect $750mn of sales to McDonald’s alone by 2030.”
Credit Suisse forecast Beyond Meat to deliver $2bn in sales by 2026 and set its price target at six times that total. Competition was the company’s biggest threat, it said.
● JPMorgan Cazenove repeated “overweight” advice on British American Tobacco with a £40 target. Fears around a collapse in US cigarette revenues and slowing uptake of e-cigarettes look to have been overdone, it said.
With the main tobacco companies acting rationally, resilient cigarette pricing should support profits in spite of worsening sales by volume, JPMorgan said. It expected US cigarette sales by volume to fall 4.8 per cent this year but saw profit per pack rising 7 per cent. And while overall sales of vapour pipes were slowing “given the lower inflows of underage vapers”, BAT appears to have been winning market share having flagged good momentum for its own range at a 2019 capital markets day, the broker said. It also highlighted that BAT had a pre-close update due on June 12.
● Deutsche Bank cut Sage, the accountancy software maker, to “sell” from “hold” with a 650p target. A valuation of 24 times 2020 earnings was nearly on par with peers in spite of higher execution risks, it said.
“Sage has made good progress in transitioning to a subscription revenue model. However, we foresee recurring revenue growth slowing from here as some of the initial boost factors from a subscription transition fade. We believe that SGE is now entering a new phase, where the quick wins from low-hanging fruit are fading, and the company now needs to focus on organic product development to sustain growth in the future. In our view, this will unavoidably result in a sustained rise in Sage’s historically low level of research and development investment and operating margin pressure.”
R&D costs meant growth in Sage’s organic earnings per share and free cash flow were unlikely to exceed low- to mid-single-digit percentages over the medium term, well below the software peer group average, Deutsche said. “Given Sage’s historically somewhat indifferent execution around product development, investors are unlikely to automatically assume that there will be a payback that sufficiently compensates for this relatively meagre outlook.”
● JPMorgan Cazenove upgraded 888, the Gibraltar-based online casino operator, to “overweight” with a 220p price target following a capital markets day this week.
The company’s UK consumer-facing business had been turned around, with 24 per cent like-for-like growth in the year to date thanks to a successful pivot towards the mass market recreational gamblers rather than high rollers, said JPMorgan. It said VIPs made up less than 10 per cent of 888’s customer base, from between 35 and 40 per cent previously, which better positions the company to deliver sustainable growth.
JPMorgan forecast 2019 to be a trough year for 888’s earnings due to tax hikes and shrinking revenue from the poker and business-to-business lines. The broker also highlighted integration costs from the acquisition in March of Irish-based Betbright.
But high operating leverage means 888’s like-for-like growth will eventually drop through to operating earnings, while costs fall as Betbright phases out its current betting services provider Kambi, the broker said. And because 888 owns and controls all aspects of its offer, the company has a difficult-to-replicate advantage over peers that use third-party providers, it said.
● In brief: Ascential rated new “outperform” at Macquarie; Bpost cut to “sell” at Goldman Sachs; Centrica rated new “hold” at Société Générale; Compass cut to “sector perform” at RBC; Deutsche Wohnen cut to “equal-weight” at Morgan Stanley; Jyske cut to “sell” at Nordea; Pets at Home cut to “hold” at HSBC; Royal Mail cut to “hold” at HSBC; Ryanair upgraded to “buy” at Deutsche Bank; Software AG raised to “neutral” at Credit Suisse.
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