Brokers: Two high street retailers are downgraded

Poundland and Tesco have both been downgraded today, while brokers disagree on the prospects of Imperial Brands…

Shop front of a Poundland store
Poundland has been downgraded by Deutsche Bank

Liberum has upgraded plumbing and building materials distributor Wolseley (LON:WOS) to a ‘buy’ recommendation from ‘hold’, maintaining its target price of 1400p.

The broker said that the company’s share price weakness “had led to a much more compelling valuation”, while it noted that the pound’s weakness against the US dollar “would be positive for shares”.

Liberum put Wolseley’s weaker sales this sales quarter down to “adverse weather” which contributed to slower growth.

It adds that the declining share price now “throws up an opportunity.”

On the small cap front, Cantor Fitzgerald has reiterated its ‘buy’ recommendation for Dekeloil Public Ltd (LON:DKL) and raised its target price 23.6p from 22.5p.

Cantor said DekelOil’s purchase of a minority in Ayenouan palm oil mill “represents strong strategic progress following on the back of strong operational progress.”

Another junior getting the ‘Buy’ treatment was Orosur Mining Inc (LON:OMI) as Cantor Fitzgerald said, “despite a 100% rise in the company's share price since the start of the year, OMI continues to trade at a discount of 80% to the average for London-listed gold producers”.

The broker says it expects Orosur to confirm in its fourth quarter operational update that it has met its full-year 2016 guidance of 30,000 to 35,000 ounces with costs less than US$1,000.

“In addition, full year results in August should confirm a significant improvement in operating profitability in the second half of the year”, Cantor added, as it reiterated its ‘buy’ rating and target price of 26p.

Back to the big boys, RBC Capital Markets upgraded its rating for Imperial Brands PLC (LON:IMB) to ‘sector perform’ from its previous ‘underperform’ rating.

Although JP Morgan Cazenove reiterated its ‘neutral’ rating for the tobacco firm, and lowered its target price by 80p to 3700p.

The bank views Imperial’s strategy as “risky”, while it believes that novel nicotine products (NNPs) – such as e-cigarettes – will prove to be very “disruptive” for the industry over the coming years.

Societe Generale has reiterated its ‘sell’ recommendation for UK retailer Tesco PLC (LON:TSCO), and has reduced its target price to 130p from 150p.

The French financial services group says the potential threat from Amazon’s new food delivery service “underpins [its] cautious stance on Tesco”, although it does praise the progress made by CEO Dave Lewis.

It added that the cut in target price was “to reflect more cautious long-term assumptions on UK sales growth (potential acceleration of store closures, threat of AmazonFresh)”.

Discount chain store Poundland Group PLC (LON:PLND) has been downgraded from a ‘buy’ to a ‘hold’ recommendation by Deutsche Bank, although Deutsche increased its target price to 205p.

The German bank said that the results delivered today were materially in line with expectations.

It adds that momentum remains “disappointing” and, due to the recent rise in the share price, the bank “now see[s] limited fundamental upside” in the stock.

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