Stocks to watch: Just Eat, HSBC, Red Hat, TomTom, Daimler
Uber and Deliveroo growth augers ‘demise’ of rival takeaway ordering site, says Peel Hunt
? HSBC climbed after its third-quarter results beat expectations thanks to loan growth and cost-cutting, with adjusted pre-tax profit of $6.2bn coming in 8 per cent ahead of the consensus forecast. Impairments were slightly more benign than expected, in spite of trade tariffs and emerging market volatility, and there was no change to full-year guidance.
Analysts welcomed that HSBC had delivered a positive jaws ratio — income growth versus expenses growth — and remained on track to deliver positive jaws at the full year. Citigroup noted that HSBC had delivered its best trading income since the first quarter of 2016, albeit with a boost from foreign exchange trading that may not be sustainable.
? IBM slumped on fears it had overpaid for Red Hat, having agreed to buy the open-source software group for an enterprise value of $34bn. The price tag of $190 a share was a 63 per cent premium on Friday’s close — the equivalent to about 33 times Red Hat’s current-year operating earnings.
But Cowen & Co argued that other suitors might be in the wings, despite IBM’s high bid. “The substantial premium that IBM is paying for Red Hat might on the surface seem to make it highly unlikely that a superior bid could occur,” said its analysis. “However, we believe there is a reasonable possibility that another suitor could emerge.” Cowen & Co said that, depending on the size of the break fee, Red Hat was most likely to attract interest from Cisco and Google owner Alphabet, with Oracle also in the frame.
? Valeo and Daimler led a rally among the European auto stocks on reports that China was considering cutting its car purchase tax from 10 per cent to 5 per cent as a way to arrest sliding sales. China accounts for about a quarter of global car sales.
? TomTom jumped after industry website TMT Finance reported that the Dutch satellite navigation pioneer was a possible takeover target. It named Audi, Daimler, Here Technologies, Trimble and Apple among the possible bidders.
The speculation follows talk last month that TomTom might sell its profitable telematics unit, which accounts for most of its market valuation. Analysts have argued that if TomTom were to dispose of the telematics business, the next step might be a take-private by founders and management who still own 44 per cent of the group’s share capital.
? Peel Hunt cut Just Eat, the takeaway ordering website, from “buy” to “sell” on competition concerns.
Uber Eats had been beating Just Eat for smartphone real estate and Deliveroo had deeper pockets, said the broker. It also argued that the growth of competitors with their own delivery networks would erode the value of Just Eat’s data on restaurants, which had been seen as a unique competitive advantage. And with customers increasingly expecting their online apps to provide services such as supplier vetting, the age of the high-margin platform model might be ending, Peel Hunt added.
Its downgrade follows reports in September that Uber was in early-stage talks to buy Deliveroo.
“Prompted by rumours surrounding Uber and Deliveroo, we postulate that the two of them (merged or otherwise, let’s call them Uberoo), around the world, could create an Uberoo-esque wave that eventually sees the demise of Just Eat. Both are capable of out-investing Just Eat in delivery and are entering the more lucrative marketplace sector.”
? Citigroup upgraded Metro Bank from “neutral” to “buy” with a £25.90 target price. While Metro’s targets remained overly optimistic, the stock’s 25 per cent underperformance versus the European bank sector since early March had overly discounted the negatives, Citi said.
? In brief: AB InBev upgraded to “outperform” at RBC; AIB raised to “buy” at Goodbody; BW Offshore upgraded to “buy” at Kepler Cheuvreux; Celyad rated “hold” at Kepler Cheuvreux; DIC Asset cut to “hold” at HSBC; EssilorLuxottica raised to “sector perform” at RBC; HeidelbergCement cut to “hold” at Commerzbank; Immofinanz upgraded to “buy” at HSBC; Ipsen downgraded to “underperform” at Credit Suisse; Luxottica raised to “sector perform” at RBC; Mediaset España cut to “hold” at HSBC; Merck upgraded to “outperform” at Credit Suisse; Neste upgraded to “buy” at Société Générale; Outokumpu cut to “hold” at Jefferies; Scout24 raised to “buy” at UBS; Signify cut to hold at SocGen; TLG Immobilien upgraded to “buy” at HSBC.
European stocks keep their poise after China sell-off
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