Broker tips: Melrose Industries, Zephyr Energy, Entain

6th Sep 2024 15:08

(Sharecast News) - Morgan Stanley initiated coverage of Melrose Industries on Friday at 'equalweight' with a 500.0p price target, noting that a strong aftermarket narrative supported its belief that profit and loss would come in 6-10% above consensus by 2027.

"We believe cash flow is set to rise materially but timing is uncertain," it said, as it noted detailed estimates by segment suggest strong structural growth.

"Melrose benefits from strong momentum in Aftermarket while it has early exposure to the civil volume ramp-up as it delivers products 6-9 months ahead of aircraft completion," it said. "We estimate Melrose can capture a 10% global market share by 2030 in Repairs, fuelled by 1,500 aircraft not being retired recently.

However, Morgan Stanley added that a look at the RRSP business model suggests cash visibility was limited.

Analysts at Canaccord Genuity raised their target price on exploration and production firm Zephyr Energy from 14.0p to 16.0p on Friday following the publication of the group's hotly-anticipated 36-2R production test results.

Zephyr's eagerly awaited second production test of the State 36-2R well in its Utah-based Paradox acreage achieved a peak production rate of over 2,100 barrels of oil equivalent per day, consisting of roughly 1,590 boepd of gas, and approximately 510 boepd of condensate/light volatile oil at peak production, with these condensate yields increasing towards the end of the test.

"This a very strong result landing towards the top end of Zephyr's expectations and implies an attractive commercial profile using non-hydraulic stimulation methods, presenting a lower risk/cost method for future development in the Paradox acreage," said Canaccord Genuity.

Canaccord Genuity, which has a 'speculative buy' rating on the stock, noted that Zephyr has now initiated the process of finding a financial partner to accelerate the Paradox project's development roll-out.

"Management believes that the wealth of data from drilling the State 16-2, 36-2, and 36-2R wells, alongside 3D seismic, core samples, stimulation data and recent production test results provides a strong offering for potential partners to gain comfort in the potential of the Paradox acreage," said the Canadian bank.

Canaccord added that success at Paradox could also potentially be a catalyst for attracting a partner at Zephyr's neighbouring Salt Wash helium play.

Analysts at Berenberg lowered their target price on bookmaker Entain from 1,140.0p to 1,020.0p on Friday, stating that the group was not yet "out of the woods".

Bernberg noted that Entain's shares have fallen 37% year-to-date, but said it believes the company has still not been given credit for its prospects both in the US and outside.

"While we can understand market scepticism given persistent earnings downgrades and market share losses, the raising of ex-US EBITDA guidance with the H1 results is the first positive step for Entain, although it is not yet out of the woods," said Berenberg.

The German bank highlighted that since Entain's upgrade on 8 August, its shares have rallied 20%, and said it would expect in-line Q3 results to be enough to continue the shares' upward trend.

"In the US, we believe the launch of Angstrom will support an improving product and tech offering. Although we do not expect immediate results, any evidence that BetMGM has improved in the US would provide scope for a rerating," added Berenberg, which reiterated its 'buy' rating on the stock.