Broker tips: Hikma Pharmaceuticals, Judges Scientific, Michelmersh Brick
3rd Sep 2024 15:26
(Sharecast News) - Berenberg upgraded Hikma Pharmaceuticals on Tuesday and lifted the price target to 2,400.0p from 2,100.0p as it said "clear progress" had been made.
The German bank said that after almost two years with a 'hold' rating, it believes the time is now right to upgrade the stock to a 'buy'.
"We have more confidence in the growth outlook across the business (including the US Generics business) for the next year and we also have more certainty on the business's leadership, following a period of management change - this included the hiring of a new permanent CEO (an internal appointment who knows the business well), as well as a new head of Injectables and US Generics," it said.
Berenberg stated Hikma continues to maintain a strong balance sheet, with leverage at 1.3x and $1.5bn of firepower available for further M&A - in addition to the recently announced Xellia Pharmaceuticals deal.
"We also think that the returns Hikma offers are excellent, with return on invested capital averaging 16% over the last three years," said Berenberg. "In this context, the valuation of 11.8x price-to-earnings does not look demanding, in our view."
Jefferies initiated coverage on Judges Scientific on Tuesday with a 'buy' rating and 12,230.0p price target, as it said the valuation was more attractive following the recent share price correction, particularly if potential M&A upside was considered.
"We see Judges as one of the highest-quality names in the sector, due to its impressive track record of value creation, margin expansion and growth, and we believe the recent share price correction has created an attractive entry point, with the stock now trading at discounts to five-year average multiples," it said.
Jefferies pointed out that Judges was focused on buying scientific instrumentation companies with strictly defined characteristics and performance criteria, which has resulted in a 21% revenue compound annual growth rate and 28% EBITA CAGR from FY06 - FY23, with margins growing 1,190 basis points.
"The company's balance sheet offers ample headroom, and our M&A scenario analysis shows potential for 4-17% earnings per share accretion in FY25F at a leverage range of only 1.0x-1.7x," it said.
Analysts at Canaccord Genuity lowered their target price on building products manufacturer Michelmersh Brick Holdings from 180.0p to 170.0p on Tuesday following the group's interim trading results.
Canaccord Genuity said Michelmersh's interims confirmed "a resilient outcome" for the six months ended 30 June, with delivering revenues of £35.4m and adjusted underlying earnings of £7.2m, down 15.7% and 17.2%, respectively, amid "persistent headwinds" from "a challenging macro backdrop" and a strong comparative.
The Canadian bank stated that "pleasingly", Michelmersh has also taken share in "a highly competitive market", allowing it to outperform a 9% decline in UK brick dispatch volumes through H124. Strategic actions to target a diverse range of end markets with a wide product set, and to work with customers on appropriate pricing, have been key to securing order intake at Michelmersh, noted Canaccord.
"Encouragingly, we are told that order intake continues to trend positively and is once again running ahead of capacity at levels not seen for 24 months," said Canaccord. "This is providing the group with revenue visibility through H2 to maintain full production volumes and commit to planned capex initiatives that target growth, efficiencies and sustainability."
Looking ahead, Canaccord noted that while market fundamentals have been strengthened by the new Labour Government's pledge to build 1.5m homes and sector PMIs have begun to improve, the timing of an anticipated market recovery "remains uncertain" and was highly correlated to interest rate policy.
"As a result, Michelmersh is now guiding that H2 2024 performance is likely to provide a similar outcome to that of H1. We adjust our FY24E estimates accordingly (EBITDA -20%) and anticipate a recovery which builds through FY25E," concluded Canaccord, which also maintained its 'buy' rating on the stock.