Broker tips: Domino's Pizza, Ocado, Aveva

20th Oct 2015 13:13

(ShareCast News) - Domino's Pizza got a boost after Citigroup lifted the stock to 'buy' from 'neutral' and raised the price target to 1,170p from 760p.The bank said it sees continuing strong UK growth in the medium term through both good like-for-like sales and store roll-out.In addition, it said mobile ordering is a key driver of LFL sales momentum, a trend it sees continuing.For the German business, although the difficulties to date have been well documented, it reckons Domino's will prove a success in the long run, especially in the context of the 560 stores in Belgium/France/Netherlands, run by the Australian Domino's business."We recognise that profitability in Germany has been pushed out, but we see similarities to the UK business, which also saw limited profitability in its early years. We await further news on the repositioning in Germany."Macquarie initiated coverage of Ocado at 'outperform' with a 410p price target, saying the market is significantly underestimating operating leverage in the company's business model."We think conservative company guidance on operating costs is holding back the market," the broker said.It noted that in its first-half results, Ocado set the bar low, guiding to +100-200bps long-term margin from warehouse and delivery efficiencies. Macquarie said a lack of clarity on timing or further upside has put a lid on expectations, adding that Ocado has a history of setting itself very beatable targets.In addition, Macquarie said significant start-up costs are masking operating leverage.It said the Ocado Smart Platform, subscale non-food business, and preparation for cosmetics site launch all penalise the company's admin expenses, where Macquarie believes it is achieving significant operating leverage on an underlying basis. Shares in engineering software company Aveva rallied in early trade after Berenberg upgraded the stock to 'buy' from 'hold' and lifted the price target to 2,450p from 1,977p."Our discussions with various interested parties have strengthened our view that the deal between Aveva and Schneider will close," it said.Berenberg noted that Schneider has acquired a number of software assets over the past five years and as a result, the bank reckons its management is strongly motivated to close its reverse takeover of Aveva.While Aveva's share price seems to reflect the market's uncertainty about the deal closing, Berenberg said it believes the due diligence process is drawing to an end and the publication of a prospectus will create more certainty.