Broker tips: Hostelworld, Just Group, InterContinental Hotels, Whitbread

By Iain Gilbert

Date: Thursday 12 Sep 2019

Broker tips: Hostelworld, Just Group, InterContinental Hotels, Whitbread

(Sharecast News) - Analysts at Berenberg cut their price target on online booking firm Hostelworld from 230p to 145p on Thursday, stating that they preferred to "remain on the sidelines" until there were clearer signs of a turnaround from the group.

While Berenberg said that Hostelworld looked "very cheap" at face value, it highlighted the fact that the group's earnings forecasts had continued to fall and noted that its turnaround programme was still "shrouded in uncertainty".

The German bank believes Hostelworld has been losing market share since "at least 2014" and expected similarly flat revenues from the group in its current trading year despite seeing its average commission rate increasing from below 13% to over 16%, which implies a significant fall in total transaction value.

"Perhaps of more concern, the pace of decline appears to have accelerated."

Berenberg thinks some of Hostelworld's poor performance can be attributed to the "tech debt" built up under past management, which new CEO Gary Morrison was seeking to address. However, the analysts warned that delivering improvements across a variety of areas "takes time" and anticipated that the impact of those initiatives was only likely to be felt from 2020, at the earliest.

"As a result, while we think there is value in the shares (and believe there is a mounting buy-out risk), we prefer to remain on the sidelines until there are clearer signs of a turnaround in momentum," said Berenberg, which reiterated its 'hold' rating on the company.

Over at Deutsche Bank, analysts lowered their target price on UK financial services firm Just Group from 77.0p to 54.0p after management published "two significant items of new information".

Just Group's first point of interest to Deutsche Bank covered the estimated impact of CP7/19, while the second showed how future free surplus generation might develop in a hypothetical run-off.

After taking a look at Just Group's updates, DB amended its projections for future solvency as it assessed how the shares should be valued in four different scenarios.

"We think the outlook for the group in its current form appears highly uncertain," said the German bank, which also reiterated its 'hold' rating on the London-listed group.

"Without management actions we forecast solvency falling to 119% by 2021; and, though this can probably be lifted back above 130% through hedging or further reinsurance, even this level is 20-30pts too low for a company so heavily geared to UK house prices."

InterContinental Hotels and Premier Inn owner Whitbread were under the cosh on Thursday as JPMorgan Cazenove stuck 'underweight' ratings on shares of both, saying it was turning more cautious on the risk profile for the European hotel sector.

Reasons for the caution include a lack of momentum, high consensus expectations, high multiples, late-cycle, decelerating revenue per available room, company-specific concerns, a lack of catalysts and an uncertain macro environment.

JPM cut the rating on IHG down from 'neutral' as it said that recent share outperformance, close to peak valuation, an extended cycle and decelerating industry trends, combined, suggest an unattractive risk-reward profile. The target price was lifted to 4,700p from 4,350p.

JPM reinstated Whitbread at 'underweight' after a period of restriction.

"With the £2bn SBB tender offer completed, most of the value unlocked by the Costa deal has been allocated. Business momentum has significantly deteriorated in the UK since the beginning of the year.

"As a pure UK domestic business, WTB is the most exposed hotelier to the current economic and political UK turmoil," it said. It has a 3,800p price target on the shares.


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