Broker tips: Moneysupermarket, Vodafone, Balfour Beatty

RBC Capital Markets upgraded Moneysupermarket on Monday to 'outperform' from 'sector perform' and lifted its price target on the stock to 250.0p from 230.0p as it argued that the 20% de-rating since August presented a good entry point.

RBC said Moneysupermarket shares were now trading attractively at a free cash flow yield of 10%.

"We believe MONY's core business should benefit from consumers increasingly looking to save on their monthly bills, positioning it as a resilient play during the economic downturn," RBC said.

"This drives our confidence in the company's ability to deliver +7% year-over-year revenue growth in FY23, amidst an economic downturn. This is despite what we think are conservative assumptions. We assume no revenue contribution from energy switching and for travel insurance revenue to normalise back towards 2019 levels (versus 30% growth in Q2)."

RBC said that based on its conservative assumptions, the company can deliver in line with expectations, which amid market downgrades, should drive relative stock outperformance.

Analysts at Berenberg lowered their target price on shares of telecommunications giant Vodafone from £1.35 to £1.15 on Monday, stating the group was at risk of slipping into European decline.

Berenberg said that just over a year ago, Vodafone returned to European service revenue growth in the first quarter of the 2021-22 trading year after three years of decline.

"The bull case, articulated by Vodafone's medium-term ambition, was that revenue growth in Europe and Africa, alongside cost control, would allow for mid-single-digit EBITDAaL and FCF growth," said the analysts.

However, the German bank said it now forecasts European service revenue slipping back into decline in the third quarter, while inflationary cost pressures also meant it now forecasts declines next year in earnings before interest, tax, depreciation and amortisation, after leases, and free cash flow.

"Consensus forecasts for the core German market still need to reduce, which in our view offsets the fact that progress on M&A finally seems to be being made," added Berenberg, which reiterated its 'hold' rating on the stock.

Jefferies initiated coverage of Balfour Beatty on Monday with a ‘buy’ rating and 375.0p price target, arguing that the market was underappreciating improved security of earnings and the infrastructure group's transformation towards a lower risk model.

The bank said Balfour looks set to deliver another year of earnings growth in 2022, the sixth in seven since new management took over.

"This continues a trend of improving operational momentum since earnings troughed in 2015," it said.

Jefferies noted that since arriving, management has delivered on objectives of cash generation and pre-tax profit, which make up 75% of annual incentives, underlining Jefferies’ confidence in continuing strong execution.

It also expects to see 5% earnings growth over 2022-25, putting it 8% to 10% ahead of consensus. In its forecasts, Jeff assumes the support services business grows at around 8% compound annual growth rate from £80.0m to £100.0m by 2025, driven by a combination of strong sales demand and modest margin expansion.