Broker tips: Keller, Paragon, Greggs

(Sharecast News) - Deutsche Bank downgraded Keller Group on Thursday to 'hold' from 'buy' as it said the investment case has played out, for now. The bank, which cut its price target to 1,660p from 1,800p, said effective management actions over the last five years or so have contributed to an impressive transformation in financial metrics, alongside a substantial upgrades cycle, resulting in the share price doubling since late 2023.

Notably, a 7% FY24 EBIT margin was 40% above its 10-year average and 28% return on capital employed nearly double its average.

"However, group profits fell double digits in H224, and guidance for a return to a normal H2 weighting this year implies a further fall year-on-year in H1-25, before requiring high growth in the second half to meet FY consensus," DB said.

Canaccord Genuity raised its target price on specialist finance provider Paragon from 958.0p to 1,001.0p on Thursday following the group's H1 trading results in June.

Canaccord Genuity nudged its underlying pre-tax forecasts 0%-2% higher for FY25-27 and upgraded its underlying diluted earnings per share estimates by 2%-3%, accounting for an additional £50.0m share buyback, which Paragon announced alongside its results.

The Canadian bank also noted that a decision from the Supreme Court on "hidden commissions" in motor finance could be imminent, with July being suggested by the Court. In H125, Paragon took a provision of £6.5m related to motor finance commissions liabilities and while Canaccord Genuity noted that it was difficult for it to judge whether this was adequate based on available information, it cautioned that "the first provision is not usually the last".

"However, we note that the provision relative to the size of the motor net loan book appears to be within the peer group range," said Canaccord, which reiterated its 'buy' rating on the stock. "PAG previously disclosed that with respect to 'hidden commissions', which is the subject of the current Supreme Court review, between 2014 to Sep 24 it paid £9.0m of commission to broker-dealers (the subject of the case), just 18% of the total £49.0m motor commissions it paid."

Canaccord said its new target price makes further allowance for potential liability concerning motor finance commissions significantly above the provision already taken, implying 9% upside and a total shareholder return of 14%.

Analysts at Berenberg lowered their target price on fast-food bakery giant Greggs from 3,250.0p to 3,040.0p on Thursday, noting that like-for-like volatility had continued.

Berenberg said that recent high temperatures across the UK had resulted in a deceleration in Greggs' like-for-like sales growth and a 5% downgrade to consensus expectations for FY25 adjusted operating profits.

Greggs reported 2.6% year-on-year like-for-like sales growth in H125, implying a roughly 1.3% deceleration relative to the first 20 weeks of FY25, something it attributed to worsening footfall trends stemming from warm weather.

Greggs now expects to see "a modest reduction" in adjusted operating profits in FY25, resulting in a roughly 5% downgrade to Visible Alpha consensus.

The German bank, which reiterated its 'buy' rating on the stock, said it continues to think Greggs' broader equity story "remains intact" despite the continuation of volatile trading conditions.

"We now project group lfl sales growth of 2% yoy in FY 2025E, down by 1ppt versus our prior forecast. This has resulted in a 6% downgrade to our adjusted operating profit forecast in FY 2025E given the impact of operating leverage," said Berenberg. "Our revised lfl forecast implies continued demand softness across July and August at levels similar to what is implied in June trading."