Broker tips: Intertek, Cerillion, Future, Midwich

21st Oct 2024 12:54

(Sharecast News) - RBC Capital Markets downgraded Intertek on Monday to 'sector perform' from 'outperform' and cut its price target on the stock to 5,000.0p from 5,200.0p.

"Intertek has performed well versus the wider sector year to date and now trades at what we deem to be fair value, taking into account recent FX movements and, we think, a less certain outlook for FY25," the bank said. "Thus we lower our rating to sector perform."

RBC said Intertek has struggled to shake off its reputation for overpaying for M&A historically, but it thinks attractive regional exposures, improved capital discipline and the lowest proportionate restructuring costs compared to peers historically, still hold their attractions for longer-term investors.

"We still see ITRK as attractively positioned for the medium to longer term, but would wait for a better entry point after decent share price performance year to date."

Analysts at Canaccord Genuity hiked their target price on software firm Cerillion from 1,675.0p to 2,000.0p on Monday following the group's FY24 trading update.

Canaccord Genuity said a "solid first half" offered scope for upside to its forecasts for Cerillion and stated its FY24 trading update meant the group's streak of double-digit organic growth at more than 40% operating margins and beating consensus expectations had continued.

The Canadian bank, which reiterated its 'buy' rating on the stock, pointed out that in "a volatile macro and soft telco spending environment", Cerillion had continued to deliver upside to consensus, mid-teens double-digit organic growth and roughly 20% last twelve months free cashflow margins, making it one of only a few close to "Rule of 40" stocks in UK SMIDcap software.

"Our new £20 target price is based on a 36x CY25E P/E multiple," said Canaccord Genuity. "This puts the company towards the upper end of the peer group and is justified by continued double-digit growth, strong FCF margins and consistent delivery of upside to consensus forecasts."

Future's share price took a dive last week after the unexpected departure of chief executive Jon Steinberg, but the news didn't dissuade JPMorgan from its positive view on the publishing and events company.

JPMorgan reiterated its 'overweight' rating for Future in a research note on Monday, keeping its 1,296.0p target price, representing 63% upside to the previous closing price.

JPM said Steinberg's exit "has no doubt cast uncertainty on the crystallization of an equity story that has increasingly aligned to its sum-of-the-parts and resurfaced concerns on the underlying state of the portfolio".

However, JPMorgan said investors should remember that Steinberg's notice period was 12 months, while the company's outlook was strong as it actively studies options to accelerate value creation from its businesses.

"While the CEO exit is a clear negative and perceived as a set back by many investors who argue it will take time to rebuild confidence in the narrative, we continue to see inherent upside to valuation at these levels (4.3x EV/EBITDA 25E) and stay constructive with potential for corporate action to stand as a catalyst," said JPM.

Finally, analysts at Berenberg lowered their target price on technology distributor Midwich Group from 620.0p to 500.0p on Monday following the company's unscheduled trading update.

Midwich stated that wider market conditions had not improved as it had previously anticipated. Although it noted the UK audio-visual market appeared to have stabilised since the group last reported on 3 September, other markets, specifically Germany, deteriorated further and management now expects current conditions to persist for at least the remainder of the year.

On account of the operational leverage in Midwich's business, Berenberg said operating profit will now be "significantly below" previous expectations, leading it downgrade FY24 forecasts by roughly 20% at the pre-tax profit and earnings per share levels.

"While the update is clearly disappointing, Midwich remains the leading global specialist professional AV distributor, and current performance is reflective of challenging markets felt across multiple sectors," said the German bank, which reiterated its 'buy' rating on the stock.

However, Berenberg added that as and when the backdrop eases, it considers Midwich well-placed to deliver against its medium-term growth aspirations.