- November 27, 2020
- Posted by: Stratford Team
- Category: Markets
On Wednesday, the Dow Jones hit a record high of 30,000, prompting President Donald Trump to host a press conference to celebrate breaking – what he called – “a sacred number”.
Indeed, markets have been performing victory laps, on the new that three vaccine frontrunners now have promising updates, building on the increased political certainty from the confirmation of Joe Biden’s win in the November presidential election.
After taking a thrashing throughout the pandemic, value stocks – those that are most exposed to the health of the global economy – are now finding favor with some of the leading banks. Last week, JP Morgan Casenove said the trend has ‘legs’, as hard-hit sectors like retail and airlines took gains as investors realized their profit on some of the big “stay at home stars”, such as Zoom, Amazon and Microsoft.
The S&P 500 Value index has risen by around 14% so far in November, compared with around 9% gains in the Growth index.
For the second time this month, Deutsche Bank has combed through the stocks universe for decent buying opportunities among European value names, which have been some of this year’s biggest underperformers.
These are 10 new stocks that they just upgraded.
- Ticker: SOLB:BR
- Market cap: €10.03 bln
- Sector: Chemicals
- Target price update: EUR 82 to EUR 125 / Increase of 52.4%
Analyst commentary (Virginie Boucher-Ferte): BUY -A transformation story (potentially) worth E150
“Solvay has good assets but has been facing cyclical headwinds, which, in an organisation heavily focused on expanding the business, has led to poor returns and cashflow. EBITDA hasn’t grown since 2012,” she said.
“However, change is underway, driven by the (relatively) new CEO. Three factors underpin our upgrade: 1) cultural change towards greater investment & cost discipline and focus towards faster-growing, more sustainable Materials, to drive cash and RoCE improvements; 2) portfolio shift (initially through asset disposals) to eventually become a Materials/”green mobility” pure play and 3) earnings recovery,” she explained.
“We raise our 20-23E EPS by 4-12% and forecast 8% EBITDA CAGR through the period. We increase our TP to E125 – though our medium-term “upside scenario,” assuming a more aggressive portfolio shift, points to an eventual prospective fair value of E150, ~70% above the current level. With the stock trading at 6.6x 22E EV/EBITDA and a 10% FCF yield, we see value and upgrade to BUY,” she added.
Plastic Omnium Plastic Omnium share price
- Ticker: PLOF:PA
- Market cap: €4.29 bln
- Sector: Manufactoring
- Target price update: EUR 20 to EUR 27 / Increase of 35.0%
Analyst commentary (Christoph Laskawi): HOLD (Was previously buy) – Ambitious hydrogen targets and an early look at 2021.
“POM has announced ambitious Hydrogen targets at their CMD alongside an early look at 2021 which generally has been taken well by the market. With the strong move into hydrogen full range offerings, Plastic Omnium is making a push to diversify the portfolio stronger towards alternative drivetrains and is hitting the right tone in a heated discussion on what’s next,” he said.
“Clearly, Plastic Omnium is entering the race with confidence to become a market leader in the field. Moreover, the sharper-than-expected margin recovery that is indicated for 2021 proves confidence in the companies cost cutting efforts launched this year,” he explained.
“However, our upgrade shares have since rallied ~50% versus the SXAP at ~30%. And while we see the CMD and margin announcements as strong positives, we move our rating to Hold based on valuation,” he added.
Croda Croda share price
- Ticker: CRDA:LDN
- Market cap: £8.22 bln
- Sector: Chemicals
- Target price update: 5,700p to 6,500p / Increase of 14.0%
Analyst commentary (Virginie Boucher-Ferte): BUY
“Covid has caused short-term disruptions, but we see this crisis as an accelerator of some of the key consumer trends that ingredients companies have been thriving on – from health & wellness, clean label, sustainability, to online and delivery – which provide strong opportunities for the most innovative ingredients suppliers,” she wrote.
“We see the tier-1 ingredients players as best positioned to continue outgrowing the market due to superior and more holistic innovation platforms. For 2021-22, we forecast the sector to grow ~5% LFL with ~8% EBITDA growth on average. Portfolio shifts (which we do not include in our base case model) may be accretive to this potential,” she added.
“Sector valuation may appear high, requiring a selective approach, but we believe the space deserves to trade at a significant premium, given its sustainably superior organic growth and return profile in a consolidating industry. Our top picks remain DSM, Kerry and Symrise,” she explained
Lanxess Lanxess share price
- Ticker: LXSG.DE
- Market cap: €5.05 bln
- Sector: Chemicals
- Target price update: EUR 60 to EUR 68 / Increase of 13.3%
Analyst commentary (Tim Jones): BUY – A transformation story (with more to come).
“Since returning to Lanxess in 2014, CEO Matthias Zachert has been driving the transformation of the group to a credible specialty-chemicals name with stronger growth potential, less volatile profitability and increased ESG credentials. The exit of the rubber business (end 2018), the acquisition of Chemtura (2017), Currenta sale, delivery of cost measures/synergies and fixing of underperforming businesses are key steps already implemented,” he wrote.
“We see good medium-term growth potential given the company’s leading positions in niche specialties, supported by further self-help measures (R&D/operational efficiencies) and continuing portfolio management. We remain of the view that we are on the cusp of the next round of chemical industry consolidation and we expect to see Lanxess acting from a position of strength. The group’s strong history for value-creating M&A should allay fears of M&A risk,” he explained.
“We have increased our 2021/22 EPS forecasts by 5-10% due to modestly higher volume assumptions but also better pricing and margin assumptions in some of the business units. We have also raised the target to Euro 68 following a review of our DCF and SOTP assumptions. With the stock trading on 7x 21E EV/EBITDA and 12x 21E P/E, we see good value,” he added.
Kerry Group Kerry Group share price
- Ticker: KYGa.I
- Market cap: €18.77 bln
- Sector: Food
- Target price update: EUR 120 to EUR 135 / Increase of 12.5%
Analyst commentary (Virginie Boucher-Ferte): BUY – EPS upside + agile innovation + portfolio optionality
“Kerry’s shares have underperformed through 2020 due to the group’s large exposure to food service (70% of Taste & Nutrition’s (T&N) sales), which has been disproportionally hit by lockdown measures,” she wrote.
“We see significant share price upside underpinned by five key drivers: 1) An expected sales recovery in 2021/22 as restriction measures ease (we raise our 21-22E EPS by 4%) 2) T&N’s attractive positioning to take advantage of consumer preferences shifting towards health & wellness, convenience and natural/sustainable/clean label solutions supported by an agile innovation platform and an “integrated solutions” approach,” she said.
“3) Margins upside. 4) Portfolio shift optionality: our upside SotP valuation shows the potential value to be unlocked from Kerry becoming a pure ingredients company through a sale of Consumer Foods (CF) with reinvestment into specialty ingredients. This upside scenario yields a fair value of E150 (25% above Kerry’s current share price). 5) A deserved valuation re-rating. At 18x 2022E EV/EBITDA, we see value,” she continued.
Aroundtown Aroundtown share price
- Ticker: AT1:DE
- Market cap: €9.24 bln
- Sector: Real Estate
- Target price update: EUR 7.00 to EUR 7.80 / Increase of 11.4%
Analyst commentary (Markus Scheufler): BUY – Positive on office reval, disposals and buyback. FY guidance confirmed.
“9M value uplift at +3.6% (+1% in 3Q). Additional €0.5bn disposals in pipe. AT reported its 3Q20 results with FFO per share (after perpetual notes) declining by 10% yoy to €103m (or €0.08 per share) while the EPRA NAV advanced by 7% (vs. FY19) to E9.3 per share driven by +3.6% lfl revaluation gains (c1% uplift in 3Q),” Sheufler wrote.
“Excluding hotels, valuation uplift was at +6.5% driven by another 20bps yield expansion (vs. 1H) in offices (hotels value declined -4.7%, better than DBe),” he added.
“Key highlights: 1/ 9M valuation uplift is better-than-expected, we estimate consensus is implying a 5-6% GAV decline in FY20. Shares are trading at a 37% discount to EPRA NAV, implying a GAV discount of -19%. 2/ Outlook: Guidance confirmed with IFRS FFO (after perpetual) expected between E460-485m. On per share basis the guidance range is between €0.35-0.37 per share (slightly above prev range of €0.34-0.36 per share due to partial effect of €1bn buyback),” he explained.
BASF BASF share price
- Ticker: BASFn.DE
- Market cap: €55.21 bln
- Sector: Chemicals
- Target price update: EUR 65 to EUR 71 / Increase of 9.2%
Analyst commentary (Tim Jones): BUY – Improving specialties + cyclical recovery + portfolio shift
“BASF is entering a sweet spot with three key drivers of the share price potentially in the coming 12-18m: 1) Improving EBIT within many of the specialty businesses should be driven by improving demand but we see the additional benefits from the “cultural change” programme and associated cost cutting as well an on-going support from lower raw material costs. 2) Cyclical margin recovery (in addition to the benefits of volume leverage) driven by improving supply/demand balances in the key upstream chains. 3) Further portfolio shift across the group with the planned mid-term exit of the Oil & Gas business as well as further rationalisation of non-core chemical assets – large acquisitions are unlikely as the shift towards organic growth increases,” he wrote.
“We also see the group’s growing focus on ESG to become more visible through 2021 and provide incremental support. We have increased EPS forecasts by 7-10% (2021-23) and increased the target price to Euro 71. With the valuation at 7.8x 22E EBITDA and 14x P/E we still see further upside,” he added.
Linde Linde share price
- Ticker: LINI.DE
- Market cap: €132.97 bln
- Sector: Chemicals
- Target price update: EUR 254 to EUR 275 / Increase of 8.3%
Analyst commentary (Tim Jones): BUY – The path to a Euro 330 share price (and beyond.
“The merger of Linde and Praxair, the global No. 2 and No. 3 industrial gas players, respectively, created the world’s largest industrial gas company. We have always viewed this deal as a merger of two already global companies with profitability improvements driven more by productivity gains and best-practice leverage and not just simple “cuts”. The smoothness of the integration over the past 18m (despite the backdrop of a very volatile macro) emphasises this symbiotic nature of the deal,” he wrote.
“The impact of Covid-19 may have softened near-term EPS but the resilience of the business model overall means that 2020 will still be a year of double-digit EPS/cashflow growth. Looking to 2021-23 we see the group able to deliver further pricing power, accelerating top-line growth (driven by many non GDP sensitive growth opportunities) supplemented with further deal related synergies. We also forecast further material shareholder cash returns ($15bn between 2021-2023) as well as some portfolio rationalization,” he explained.
“Within this note we have increased our target price to Euro 275 (on the back of our growing confidence in the group’s mid-term top-line potential and margin management) and we also detail a mid-term “upside scenario” indicating a fair value for Linde of at least Euro 330 which is around 50% upside from the current level. Valuation may not be “low” (26.5x 2021E P/E) but the with the group’s accelerating growth opportunities we see further material share price upside so keep the name at BUY,” he added.
Alstom Alstom share price
- Ticker: ALSO.PA
- Market cap: €9.77 bln
- Sector: Manufactoring
- Target price update: EUR 44 to EUR 45 / Increase of 2.3%
Analyst commentary (Gael de-Bray): HOLD – Towards an EBITA of €1.6bn in year 5?
“The acquisition of Bombardier Transportation is expected to close in Q1 2021. All applicable competition authorities have authorized the transaction with the only exception being China whose review is ongoing. In this report, we fine-tune our model and introduce detailed pro-forma financials for the combined entity,” they wrote.
“We expect Alstom to deliver an EBITA of €1.6bn in 5 years’ time, which we think is around 10% short of ‘buyside’ consensus expectations. We like the long-term strategic rationale behind the Bombardier transaction but we are also cognizant of the fact that there remain significant uncertainties regarding 1/ the quality of Bombardier’s backlog and 2/ the costs required to complete the group’s troubled contracts. We retain a Hold rating but our TP is raised to €45, reflecting higher rail peers’ multiples and greater confidence in the order momentum for the next 12 months,” they added.
BUY IDEA: Catalyst Call KPN share price
- Ticker: KPN.AS
- Market cap: €10.59 bln
- Sector: Telecommunications
Analyst commentary (Keval Khiroya): BUY IDEA – Catalyst Call
“Basis for the short-term investment idea – A key concern going into KPN’s CMD was around the capex message, but with the event now over, we believe the market will start to focus on the benefits, and not just costs, of fibre. We discussed these benefits in detail in our note FTTH deep dive: the upside to EBITDA (and not just capex). Reiterate Buy. We also just published a note that details the key points from the CMD, A solid CMD: a path to growth and driving returns through FTTH. Beyond this, we believe KPN remains a key telco pick given its exposure to a rational fixed market and consolidating wireless market; opex cuts will continue, which should allow for EBITDA growth – and we note recent press reports (Bloomberg, October 2020) regarding potential M&A interest in the company. We believe any prospective private buyers are likely to recognise the long-term benefits and FCF profile after the ramp-up stage of fibre investments,” they wrote.