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Broker tips: Ryanair, Premier Oil, John Wood Group

By Iain Gilbert

Date: Monday 14 Sep 2020

Broker tips: Ryanair, Premier Oil, John Wood Group

(Sharecast News) - Liberum downgraded its stance on shares of budget airline Ryanair to 'hold' from 'buy' on Monday, as it said the stock was "best in class" but risks are balanced.

"Ryanair retains a strong balance sheet with ample liquidity, a market-leading position and favourable positioning in the segments of air travel likely to recover first and fastest (short-haul and leisure travel)," the broker said.

"Despite the long-term attractions, faced with huge uncertainty over government policies and a tough winter, more caution is appropriate."

Liberum, which kept its price target at €12.50, said that while lockdown and travel bans were bad, the current uncertainty is worse. It said government policies on travel bans and quarantines are "hugely inconsistent" across Europe and increasingly volatile and unpredictable in the UK in particular, which is a key market for Ryanair.

"Faced with the potential risk of being quarantined on arrival or return, many prospective passengers may simply choose not to travel at all," said the analysts.

Liberum said it still sees Ryanair as the long-term winner in the European airline industry and as "the best positioned in almost every respect at present".

Analysts at Canaccord Genuity cut their target price on independent upstream oil and gas company Premier Oil from 55.0p to 20.0p on Monday, stating it had identified some "valuation sensitivities" following its recent restructuring.

Canaccord said Premier's first-half results were overshadowed by the balance sheet restructuring update, and in particular its plans to raise $530.0m equity - $300.0m more than previously expected.

Looking at valuation sensitivities related to the equity raise pricing and commodity price assumptions, Canaccord said it thinks that a long term Brent expectation of more than $55.0 per barrel and an equity raise around current trading levels would provide a strong investment case but stated it was "currently more cautious" and assuming just $50.0 per barrel.

"For now we reset our target price at 20p based on our risked net present value core production and development valuation and we maintain our 'hold' rating," said Canaccord.

Analysts at Berenberg slightly lowered their target price on oilfield services provider John Wood Group from 300.0p to 290.0p on Monday.

Berenberg stated John Wood was "uniquely placed" to pivot towards the energy transition when compared to other European oil service companies given that it was "asset-light" and able to apply its engineering and consulting expertise across "virtually all emerging renewable technologies".

However, the German bank also said the firm faced "several challenges" related to material legacy issues, which remain a "huge drag on cash flow". Berenberg, in turn, highlighted that clearing up these historical woes over the next two years would be "critical" to its investment case.

"We believe that investor fears about the balance sheet are overdone, and, if execution is solid, see a path to a rerating for the stock," said the analysts, which also reiterated their 'buy' rating on the stock.

"We adjust our estimates for the first-half results, and earnings per share falls 22%/26% for 2020/21, driven by a weaker joint venture result and higher than expected one-off items in the period."

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