Broker tips: Hilton Food, Boohoo

Analysts at Berenberg upgraded food packaging business Hilton Food from 'hold' to 'buy' on Friday but cut their target price on the stock from 1,200.0p to 850.0p.

Berenberg said Hilton Food's recent profit warning provided investors with "a clear buying opportunity", stating the group's offering was "highly valuable" to grocers by offering them a way to meaningfully reduce cost, improve their supply chains and deepen their product offering.

The German bank stated headline slim margins and short-term issues at Hilton should not distract from the group's ability to consistently deliver through the cycle, with high-volume turns enabling it to generate "exceptional returns on capital".

"Following a recent trip to Australasia to see some of the group's assets, we are confident that Hilton can both deepen its relationship with existing customers, and roll out its offering in more geographies," said Berenberg.

"Although underlying volumes in its core business have been affected by a channel rebalancing and a softening consumer outlook, we think Hilton has a number of levers to offset this over the next few years."

Berenberg added that on its full-year 2023 estimates, Hilton trades on an 8.5% free cash flow yield and on 11.0x IFRS-16 adjusted earnings. Its discounted cash flow-based price target implied a price-to-earnings multiple of 15.0x.

Analysts at Deutsche Bank downgraded online retailer Boohoo from 'buy' to 'hold' on Friday, stating its view that online sales would return to structural growth after one year of post-Covid normalisation had been proven wrong.

Deutsche Bank said it had underestimated the impact of inflation on the consumer, operating costs, and valuations, noting that the old adages of "profits being sanity" and "cashflow being king" had now become the order of business.

The German bank said that accordingly, business models were changing to reflect increased costs and the weaker consumer and highlighted that the "sales growth at all costs" mentality had changed with increased attention being paid to cash flow and return on capital employed.

"We expect to see lower sales growth, better gross margin management, a tighter control on costs and capex pared back," said the analysts, who also slashed their target price on the stock from 140.0p to 36.0p.

"We downgrade Boohoo to 'hold' as we see the business facing more competitive challenges and has more of the automation capex and potential disruption to come."