Broker tips: Currys, Spirent Communications

23rd Sep 2024 15:15

(Sharecast News) - Berenberg lifted its price target on Currys on Monday to 125.0p from 92.0p as it pointed to confidence in both the growth outlook and improving cash generation.

The German bank, which reiterated its 'buy' rating on the stock, noted that Currys' share price sits about 45% below pre-Covid levels despite its stronger financial position and an increasingly optimistic outlook.

"The FY 2025 estimated price-to-earnings ratio of 8.2x gives no credit for earnings upside from here and represents a circa 40% discount versus major direct peers," it said. "It is arguable that the combined value of Currys' services revenue (circa £700m of recurring, higher-margin sales) and its iD Mobile network (over 1.9m subscribers and up by 34% year-on-year) alone accounts for the entire current group market cap."

Berenberg noted that Currys' turnaround plan has cut total indebtedness by more than £700.0m over FY 2019-24 and delivered April 2024 year-end net cash of £96.0m. It said this will drive a step-up in free cash flow to equity to roughly £100.0m in FY27E and over £150.0m per annum thereafter.

Analysts at Canaccord Genuity took a fresh look at telecommunications testing company Spirent Communications on Monday following a Reuters report that revealed Viavi "could make another bid" for the company should Keysight's recommended 199.0p per share offer fail due to regulatory concerns.

Canaccord Genuity noted that Viavi tabled its first bid for Spirent in March and was subsequently trumped by Keysight, with its "materially greater financial firepower" and "significantly greater product overlap" with Spirent.

The Canadian bank believes the Reuters article supported its investment case on two fronts - that the Keysight/Spirent deal co-operation agreement has a 'hell or high water' clause in it, which means Keysight has effectively taken on the regulatory risk of this transaction, and also that the article further quotes a source saying the deal with Keysight was "moving along as Spirent expects".

Canaccord maintained its 'speculative buy' rating and 199.0p target price as it noted a potential 'Viavi put' created a helpful backstop that should give Spirent shareholders extra confidence. However, at this stage the analysts fully expect Keysight to see its offer through.

"At 171.0p, there is ~16% upside to its approved 199.0p cash offer. Shareholders are further entitled to a 2.5p (1.5%) dividend before deal closure, with an extra 1.0p paid should this take beyond 30 June 2025. We hence calculate a 17.5% TSR assuming deal closure in the guided Nov 2024 - Apr 2025 window," concluded Canaccord.