Broker tips: Treat, Ocado, Asos

Analysts at Berenberg initiated coverage on ingredients manufacturer Treatt at 'buy' on Thursday, stating the stock was "a natural beauty".

Berenberg said a recent profit warning from Treatt, best known for the natural extracts it produces and sells to the global beverage sector, had dented investor confidence.

However, it believes the company to be "well positioned" for structural trends and said it has "the necessary ingredients" to be a multi-year compounder.

The German bank stated Treatt's key attractions were its enduring sales growth, improving returns on capital, and favourable market position.

"Conversations with many of the company's competitors, customers, and past employees corroborate our view," said Berenberg, which started the stock off with a 680.0p price target.

"Our price target is calculated using a DCF valuation (50% weighting) and a target P/E multiple (50%). Treatt trades on a 24-month forward P/E of 23x."

Barclays upgraded Ocado on Thursday to 'equalweight' from 'underweight' as it cut the price target to 775.0p from 1,500.0p, arguing that risks were now more evenly balanced.

"With retail sales set to improve, balance sheet concerns reduced for the time being and CFC (customer fulfilment centre) deal flow expectations tempered, we think the balance of upside and downside risks is now more evenly poised," the bank said.

"We value Ocado at 775.0p per share and hence move our stock rating from underweight to equalweight."

Analysts at Jefferies downgraded fast fashion retailer Asos to 'hold' on Thursday, stating "the slog continues" for the group.

Jefferies cut its full-year 2022 pre-tax profit estimates towards the low end of company guidance and said it expects to see "muted growth" continue into the 2023 trading year.

"With 'normalisation' being pushed ever-further out and macro headwinds likely to worsen, we move from 'buy' to 'hold'," said Jefferies, which also slashed its target price on the stock from 2,440.0p to 775.0p.

Jefferies said it remains "sympathetic" to pressures facing online retailers, but thinks that the key factors will ultimately normalise, or at least return a long way towards historical levels.

"Indeed, we have been positive on Asos for this reason, seeing scope for ongoing margin accretion, and looking to the longer-term fundamentals over the near-term headwinds," said the analysts.

"However, the envisaged time-frame seems to be elongating by the quarter, greater macro pressures have emerged, and (as noted) Asos also has company-specific challenges with which to deal."

While Jefferies stated it continues to believe in the normalisation trade, it said it was less convinced that now was the right time, nor that Asos was the right company, to play it.