Broker tips: Frasers Group, Admiral

(Sharecast News) - Shore Capital has reiterated its 'buy' recommendation on Frasers Group after the retail conglomerate purchased loss-making fast fashion group Matches this week. On Wednesday, Mike Ashley's Frasers announced that it has bought loss-making luxury clothing site Matchesfashion from Apax Partners for around £52.0m in cash.

Matches offers more than 450 established and next-generation designers and generates the majority of its revenue internationally, with the business delivering to 150 countries outside the UK, Frasers said. The gross assets of the acquired companies were around £170m at the end of January 2023.

Frasers noted that the business has been loss-making in recent years and said the adjusted LBITDA for the year ended 31 January was a loss of £33.5m.

Shore Capital said the deal price is "highly affordable" for Frasers, as the acquisition "is modest in the big scheme of things, and has the basis to be complementary and synergistic".

However, Frasers' ongoing stake-building within other companies such as Boohoo and Asos - the latter of which it has become its biggest shareholder this year after a series of investments - "remains a more questionable exercise", Shore Capital said.

Analysts at Berenberg downgraded insurance group Admiral from 'buy' to 'hold' on Thursday but raised its target price on the stock from 2,543.0p to 2,961.0p, stating it was now "pausing for breath".

Berenberg said Admiral has been one of the strongest performers in the insurance sector in 2023, up by 29% year-to-date, and it believes the stock will continue to have earnings per share upgrades primarily due to "very strong re-pricing" of the UK motor insurance market.

However, the German bank believes the complexity of Admiral's accounting leads to "some risk" and the high valuation multiple the company already trades on may limit the upside in the near term.

"In our view, Admiral's reserving position is still under-appreciated and we consider it as a key strength of the group. This confidence comes in part from the risk adjustment which is set to the 94th percentile, the most conservative among the insurers within our coverage," said Berenberg.

The analysts noted that one risk comes from a 'mixed injuries' court case, due to be heard in the UK Supreme Court in the first quarter of 2024, which will decide how whiplash and non-whiplash claims are to be combined in a claim settlement.

"Admiral is typically very conservative in its booking of claim reserves and we note that a negative outcome for the insurers would likely keep pricing momentum up," added Berenberg.