Broker tips: Property Franchise Group, BT, UK housebuilders

Analysts at Canaccord Genuity raised their target price on property management firm the Property Franchise Group from 437.0p to 470.0p on Tuesday, citing "high quality earnings" and a "compelling valuation".

Canaccord stated that delivered against "a challenging economic backdrop" and a contraction in residential sales, TPFG's results demonstrated "the strength and quality" of the lettings business and its franchise model.

Revenue beat forecasts, driven by owned office revenue and financial services commissions, while management service fees of £15.9m were in line with expectations. Lettings contributed 55% of MSF, sales contributed 44% and financial services contributed 1%. Adjusted operating profits of £11.1m were 7% ahead of forecasts.

The Canadian bank also noted that TPFG's outlook stated that the seasonally quiet first quarter of 2023 had been "slightly ahead of management's expectations" with regard to both revenue and profitability.

"We understand this has largely been driven by strong lettings revenues, reflecting rental inflation in both new lets and in-tenancy inflation. Costs have also been managed well year-to-date," said the analysts, who stood by their 'buy' rating on the stock.

Analysts at Berenberg reiterated their 'hold' recommendation and 160.0p target price on shares of BT Group heading into the company's full-year results on 18 May.

On Berenberg's estimates, growth was set to accelerate in Q1 thanks to price increases. However, given an average 5% drop in the share price over the past six full-year results days, they viewed the upcoming update from the company as a risk event.

That was despite the fact that the company had typically been good at delivering on its guidance, although its forward-looking outlook had disappointed. Hence, guidance for 2023/24 was top of Berenberg's list of things to watch at the next results presentation.

Next on the German bank's list was whether the so-called "EBITDA underpin" had already been used, referring to the possible reversal of the company's bonus provision in order to hit its forecast for earnings before interest, taxes, depreciation and amortisation in 2022/23.

Other key issues were whether or not average growth in revenues per user at its consumer fixed business had continued to slow and the rate of decline in BT Openreach's broadband base.

As regarded the company's valuation, they surmised that it was cheap on earnings but expensive in terms of its cash flow. In terms of its price-to-earnings ratio on the other hand, the shares looked cheaper, trading at a multiple of 10 against the sector on 15.

Analysts at JPMorgan said on Tuesday that they were still "cautious" of the UK housebuilding sector despite it outperforming the market year-to-date.

JPM reckons the sector's valuation has "run ahead of itself", with early signs of moderation in confidence and stabilisation in demand.

"We remain cautious as we see 160 basis point downside to consensus operating margins and scope for some downside for current demand," said JPM, which cut its 2024/25 pre-tax profit estimates by 9% and 5%, respectively.

The analysts said the continue to see the midcap valuations as "particularly rich" versus the wider sector and reiterated its 'underweight' rating on Vistry, Crest Nicholson, and Redrow. JPM also noted that the largest downside on 2023 estimates was at Crest Nicholson and Taylor Wimpey, leading it to place both of the stocks on its "Negative Catalyst Watch".

JPM's preference in the sector remains for Berkeley, Persimmon, and Bellway, all of which have 'overweight' ratings.

"In our view, Persimmon's underperformance last year and YTD has de-risked the equity story as the Street expects significantly larger margin decline (10%pts vs 6%pts for the sector) and place the stock on Positive Catalyst Watch into Q1 update on Apr 26," concluded JPM.