Stocks to watch: Vodafone, Purplebricks, Domino’s, Ferrari

Tuesday 13:30 BST

What’s happening

● Vodafone gained after revealing a deal to give Telefónica Deutschland access to its cable network as part of its efforts to gain European Commission antitrust clearance for the acquisition of Liberty Global assets. Terms of the deal were not made public.

Goldman called the news “neutral to positive” for Vodafone as it “brings in high-margin wholesale revenues which we believe could offset greater wholesale competition risk”. The news was a modest negative for Deutsche Telekom, which previously had Telefónica’s wholesale business exclusively, Goldman said.

Citigroup “buy” advice also helped support Vodafone ahead of results from the group due on May 14. A dividend cut could not be ruled out but would be no surprise, with the shares yielding more than 9 per cent, Citi said. However, its base case was for Vodafone to retain the payout since the annual €4bn cost was “almost covered” by current free cash flow after normalised spectrum licence costs.

● Purplebricks retreated after Michael Bruce, founder and chief executive of the branchless estate agent, stepped down with immediate effect. The company said it was pulling out of Australia and cutting investments in the US to refocus on its core UK operations, along with Canada. Vic Darvey, the former Moneysupermarket executive who was brought in as Purplebricks’ chief operating officer in January, was named as Mr Bruce’s replacement.

“Overall, we see these developments as positive — the de-risking of the portfolio and the reductions in investments into international roll-outs should be taken well. The UK is likely to generate positive [earnings before interest tax depreciation and amortisation] of £11m this year, more than compensating for losses in Canada and the US.”

JPMorgan Cazenove

● Kier led the FTSE 250 fallers on the surprise resignation of its finance director. The company said Bev Dew would leave the construction company by September 30, shortly before full-year results. News of Mr Dew’s departure came less than a month after Andrew Davies took over as chief executive.

● Domino’s Pizza slipped after warning that its international division was likely to miss a previous target of reaching break-even this year.

First-quarter UK like-for-like sales improved 3.1 per cent as price increases and bigger orders offset lower volumes, which had been anticipated based on warm weather and caution from peers including Just Eat. But international sales were up just 1.1 per cent as markets in Switzerland, Iceland and Norway all struggled.

Peel Hunt downgraded Domino’s Pizza to “add” from “buy”. It forecast the group’s international arm to lose £6.4m this year, up from its previous estimate of a £1.4m loss.

“Domino’s UK business is highly valuable. It is dominant, cash-generative and still offers expansion and efficiency opportunities. It is also in the long-term interests of franchisees to expand and grow like-for-like volumes, even more so than for the company. However, Domino’s track record overseas is not good; if it cannot run these countries profitably, then other master franchisees may think they can do better.”

Peel Hunt

● Ferrari rose after its first-quarter profit beat forecasts. Adjusted earnings were up 11 per cent to €232m, easily beating the €210m consensus as demand for the lower priced Portofino model boosted volumes. Nevertheless, margins held steady and unit revenue weakened just 2 per cent to €282,000 thanks in part to limited-edition special models. Management reiterated full-year targets.

“Note that mix/price has been an important driver for the equity story since Ferrari’s [flotation]. Yet, today we believe investors will be pleased to see a solid margin evolution against known weaker mix.”

Goldman Sachs

Sellside stories

● HSBC downgraded Centrica to “reduce” from “hold” with a 90p target price. It argued that the British Gas owner should cut its annual dividend by 50 per cent to 6p.

Consensus forecasts suggest Centrica will cut its payout by 25 per cent to 9p at interim results in July. Such a level would still be too high for a commoditised utility, leaving insufficient earnings and cash flow headroom particularly after mild weather in the first quarter, said HSBC.

● Stifel turned negative on the UK-listed industrial distribution companies to reflect “a less aggressive view of the sustainability and robustness of economic prospects”. DCC, Bunzl, Ferguson, Essentra, DiscoverIE, Electrocomponents were all downgraded to “hold” from “buy”.

“The [economic] cycle is long in the tooth, but we expect supportive end markets throughout the second half 2019 even as we expect a transition to a lower growth environment. Beyond that, the picture is more uncertain . . . We expect share price risk to remain exaggerated as the market continues to be trigger happy to [the] first circumstantial evidence of cyclical risks. In other words, with high valuations across our industrial distribution group, there is little room for error in risk-volatile equity markets.”

Stifel

● In brief: 4imprint cut to “add” at Peel Hunt, downgraded to “hold” at Liberum and rated new “overweight” at Barclays; Acacia Mining raised to “buy” at Peel Hunt; Boliden cut to “underperform” at Credit Suisse; Cembra Money Bank cut to “neutral” at Credit Suisse; Cosmo raised to “outperform” at Credit Suisse; Deutsche Post cut to “hold” at Berenberg; Eni downgraded to “neutral” at Citigroup; Gecina cut to “equal-weight” at Barclays; Hochtief raised to “buy” at Kepler Cheuvreux; Mapfre upgraded to “overweight” at JPMorgan; Partners Group rated new “hold” at Deutsche Bank; Persimmon raised to “buy” at Citigroup; Piovan raised to “buy” at Kepler Cheuvreux; Reckitt Benckiser upgraded to “buy” at Kepler Cheuvreux; SBM Offshore raised to “overweight” at Barclays; Sabadell upgraded to “overweight” at Morgan Stanley; Scout24 cut to “hold” at Kepler Cheuvreux; Swiss Re cut to “hold” at Deutsche Bank; Tele2 raised to “buy” at HSBC; Total downgraded to “neutral” at Citigroup; Umicore cut to “hold” at Berenberg.