Broker tips: DiscoverIE, Wizz Air, Synthomer

14th Feb 2024 15:24

(Sharecast News) - RBC Capital Markets initiated coverage of discoverIE on Wednesday with a 'sector perform' rating and 760 price target, as it said the growth outlook remains strong but less differentiated.

RBC noted that discoverIE has been built in its current form by M&A since 2011.

"Acquisitions remain a key strategic plank, though increased group scale may bring challenges," it said. "The group also has a robust organic growth track record at around 2x our UK coverage average since 2013."

The bank said continued strong organic growth is forecast - 5.5% CAGR to 2028E - but accelerated peer group growth (+4.5% CAGR) means this is less differentiated.

Deutsche Bank upgraded Wizz Air to 'hold' from 'sell' on Wednesday and hiked its price target on the stock to 2,300.0p from 1,800.0p, noting that in its 2024 outlook report, it had downgraded the shares for two main reasons.

Firstly, DB said fears that Q3 results on 25 January might act as a negative catalyst had been one of the things that led it to downgrade the stock, while concerns that GTF compensation might be unable to offset a deterioration in underlying trading, putting consensus estimates at risk, were the second.

DB said that while Q3 unquestionably turned out to be a very tough quarter, and while Wizz has underperformed easyJet and Ryanair by 7% and 3% over the period in question, the shares have nonetheless risen by 8% in absolute terms since 4 December.

This has been helped by two things, according to Deutsche - a still very supportive backdrop in terms of supply and demand for intra-EU leisure and VFR (visiting friends and relative) travel in 2024, as evidence by the outlook commentary from all the low-cost carriers during recent reporting and by fares seen in DB's pricing analysis report from 6 February. Secondly, it pointed to a better-than-expected outlook from Wizz in terms of how actions taken and compensation from Pratt & Whitney can potentially mitigate GTF engine issues over the next 12 months.

Analysts at Canaccord Genuity lowered their target price on chemicals business Synthomer from 350.0p to 300.0p on Wednesday as it effectively pushed out its expectations for the group's recovery by 12 months.

Canaccord Genuity said the September 2023 recapitalisation of Synthomer had left the group "well-placed to survive the current extended downturn". However, the outlook for the current year was still for limited progress.

"We are moving numbers to the right, effectively pushing the recovery out by a year; we now expect nearly all of the improvement in 2024E to be self-help, with better figures coming next year," said Canaccord Genuity. "The impact on our valuation is more modest, given that we now look well set for a sustained recovery in the chemicals industry, and we are effectively pushing out our valuation by one year".

The Canadian bank noted that Given Synthomer's equity gearing - at the current share price, the equity value sits at around 28% of the enterprise value - even a "quite modest" improvement in outlook or the successful execution of an asset sale could have "a very material impact" on the share price.