Broker tips: GSK, IHG, 888

(Sharecast News) - Citigroup put pharmaceuticals company GlaxoSmithKline on "positive catalyst watch" on Friday as it pointed to legal developments related to the company's now-discontinued Zantac heartburn drug. The bank pointed to legal developments that it said could "materially reduce" GSK' exposure versus the $17bn being discounted.

"We note a tentative ruling by Judge Rosenberg who is presiding over the multidistrict litigation could leave up to 70,000 US Zantac plaintiffs (that are being forced to exit the MDL) with insufficient time to find legal representation to file in a state court before the statute of limitations prevents them from prosecuting their claim," Citi said in a note.

"If this plays out, the eventual plaintiff pool could be materially lower than the market fears.

"Any likely settlement much closer to $10bn versus the combined $50bn of market cap that has been wiped off for the various defendants."

JPMorgan Cazenove downgraded InterContinental Hotels Group on Friday but reiterated its 'overweight' rating on Premier Inn owner Whitbread as it took a look at EU hotels.

"We reassess our convictions within EU hotels, taking a more cautious view on the sector following very supportive post-Covid leisure trends, with Whitbread our only remaining OW now," it said. "Whilst our estimates remain ahead of consensus across the board, based on continued strong momentum, there is clear uncertainty around the direction of revenue per available room into the winter and growing concerns around the consumer."

JPM cut IHG to 'neutral' from 'overweight' and reduced the price target to 5,900p from 6,100p as it argued there is limited upside left.

"We struggle to see upside to current multiples, with most of the reopening related good news behind us and concerns about the sustainability of pricing (combined with uncertain macro/consumer)," it said.

It added that the shares trade in line with historical multiples, having performed relatively well year-to-date, outperforming Accor and Whitbread.

JPM trimmed its price target on Whitbread to 4,100p from 4,150p but maintained its 'buy' rating.

"We see upside risk to WTB's estimates and valuation: (1) Defensive revenue mix (value, domestic, less white collar) in structurally appealing markets, (2) German optionality not (yet) valued whilst losses finally inflecting, (3) WTB's freehold providing some valuation support, (4) Appealing valuation (shares -c15% YTD versus profit before tax upgrades of c25%).

"We now value WTB on a sum-of-the-parts basis and include a value of £570m to reflect the German opportunity (in the context of more than £900m capital invested and committed to date)."

Berenberg cut its price target on 888 Holdings on Friday to 320p from 370p as it reduced estimates following weaker-than-expected revenue guidance, but reiterated its 'buy' rating on the shares.

The bank said 888's half-year results were in line with the company's prior guidance. The full-year revenue guidance, however, was soft compared to Berenberg's expectations and as a result, it brought down its estimates.

Berenberg noted that 888 expects revenue in second half to be in line with revenue in H1. This disappointed the market given obvious H2 tailwinds such as the re-entry into the Netherlands, the upcoming World Cup, and the US, it said.

"We bring our revenues down by 4-5% in FY22 and ahead and our EBITDA estimate comes down by 6% in FY22 and 9% in FY23. Under our new numbers we would not expect 888 to pay the contingent consideration for the William Hill deal freeing up further cash."

Berenberg added: "Looking ahead, the equity story is now all about the deleveraging and the path to 3x leverage. With pro-forma leverage of 5.6x at the half year, and an expensive interest burden, we are cognisant of risks but feel at the current valuation (6x our FY23 EBITDA estimate) the risk-reward is favourable."