On Tuesday, Barclays (LON:BARC) took a bearish turn on Avolta AG (AVOL:SW), downgrading the stock from Overweight to Underweight and significantly reducing the price target to CHF29.00 from the previous CHF45.00. The downgrade comes as the firm anticipates the end of the travel recovery boom that had previously benefited the company.
Avolta AG, which had been favored by investors following the resurgence in travel to levels seen in 2019, is now facing skepticism from Barclays regarding its growth prospects. The bank highlighted several risks including a non-compelling profile for net book value (NBW) and potential negative impacts on organic growth due to the company's hybrid business model.
Additionally, weak consumer sentiment in China and lackluster margin expansion compared to peers such as SSP Group PLC are seen as factors that could weigh on Avolta's stock performance.
Barclays expressed concerns over Avolta's price-to-earnings (PE) multiple, which currently stands at 12 times the 12-month forward earnings. The firm argues that this valuation may not be sustainable given the various challenges Avolta faces, such as the downside risks to like-for-like (LFL) sales and the company's margin expansion not being as compelling as that of SSP Group PLC.
In contrast, Barclays maintains a positive outlook on SSP Group PLC, assigning an Overweight rating and a price target of 240p. The bank's preference within the leisure concessions sector leans towards SSP due to its potential for self-improvement and re-rating.
The downgrade of Avolta AG reflects Barclays' reassessment of the company's position within the broader market and its relative valuation compared to its peers. The lowered price target of CHF29.00 underscores the bank's caution towards Avolta's future financial performance.
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