Broker tips: IAG, AB Foods, Tristel, Flutter

(Sharecast News) - JP Morgan has flagged IAG as one of its top picks across Europe's airlines, while reiterating its 'underweight' view of German rival Deutsche Lufthansa. In its latest review of the sector, published on Monday, the Wall Street bank said it had put the British-Spanish owner of British Airways, Iberia and Aer Lingus on 'positive catalyst watch' into the second half.

JPM said: "We see the potential for continued pricing outperformance leading to consensus upgrades at IAG, and to the contrary at Lufthansa. This is driven by three transatlantic drivers."

It argued that the most constrained market capacity was at IAG's core markets, with weighted volume growth to and from the US currently positive. However, it found weighted volume growth negative for Lufthansa and Air France-KLM.

"Premium demand commentary remains good for the Euro-US airlines and we estimate IAG has the highest premium seat penetration on the transatlantic," continued JPM. "Although the buy-side are broadly positive already on IAG and negative on Lufthansa and Air France-KLM, we see potential for the year-to-date performance to diverge from here.

Panmure Liberum upgraded Associated British Foods on Monday to 'buy' from 'hold' and hiked the price target to 2,600p from 1,900p as it said the market underestimates the pace of recovery of Sugar profits.

Panmure said earnings in the sugar division are volatile and have a disproportionate impact on ABF's share price, which dissuades investors from buying the stock.

It argued that the sugar segment is a quality business that generates better returns than peers, but one that has material short-term earnings risks.

"We calculate that a carve-out of the ABF Sugar business could lead to an 13-15% higher value for shareholders, and a potential disposal could generate more," Panmure Liberum, said. "However, we turn positive on ABF even with Sugar. We think the market underestimates the pace of recovery of Sugar profits, with actions already taken to address underperforming businesses."

Panmure also said the market underestimates the margin tailwinds at Primark, not just from FX but also efficiencies and operational leverage.

It also forecasts a "potent" combination of 13% adjusted earnings per share compound annual growth rate over FY'25-28E, with around 7% per annum in dividends and buybacks.

Deutsche Bank downgraded Tristel on Monday to 'hold' from 'buy' on share price strength.

The bank said the shares have re-rated strongly, up 53% since early April, on no consensus upgrades, confirming DB's prior thesis that shares were too cheap to begin with.

Deutsche said the valuation has reverted to a mid-teen EV/EBITDA multiple (mid-to-high teen historically) and 4% free cash flow yield, which it believes looks fair, considering there remains an element of a "show-me" story with respect to US expansion and returning the core business to double digit growth.

"We make no material changes to estimates, nudging our target price to 400p (385p), rolling forward valuation, but move to hold on more balanced risk-reward," DB said.

Berenberg has reiterated a 'buy' rating for Flutter Entertainment, saying that the gambling and sports betting company's upcoming second-quarter results could "surprise to the upside".

Operational results from the first quarter disappointed due to customer-friendly sporting results, though the acquisitions of Snaitech and NSX Group, which recently completed, are expected to add $1.1bn in revenue and $120m in EBITDA over 2025, according to Berenberg.

Meanwhile, taxation changes in New Jersey and Louisiana will be a headwind for the business, along with new rules of a fee per wager taken in Illinois. This will be partly offset by the acquisition of the remaining 5% of FanDuel that it didn't already own.

"State data also suggest operators have seen favourable win margins in June, which increases our confidence in the Q2 outlook," Berenberg said.

Despite the busy second quarter, the broker said it "remains bullish" given the quality of the business, its market-leading position across major markets and track record of inorganic growth.

"We think there is scope for Q2 to surprise to the upside based on operator-friendly sporting results in the US and remain of the view that FY25 guidance is well underpinned."