Broker tips: Oxford Instruments, Serco

13th Nov 2024 15:42

(Sharecast News) - Analysts at Berenberg lowered their target price on manufacturing and research company Oxford Instruments from 2,925.0p to 2,830.0p on Wednesday, citing a "strong underlying performance".

Berenberg, which reiterated its 'buy' rating on the stock, said in the context of "well-flagged weakness" across semiconductor, materials sciences and life sciences end-markets, Oxford Instruments had delivered "a very strong underlying performance" in HY25.

With "positive underlying momentum" and some green shoots of end-market recovery on the horizon, the German bank said it still sees many reasons to retain its positive mid-term view on Oxford Instruments' shares.

"We keep our sales estimates broadly flat for OI; however, we trim our EBIT estimates by c2.5% in FY26 and FY27 resulting from a refreshed view on FX and a greater contribution to growth from its, currently, low-margin Advanced Technologies division. Currently, our peer group for OI trades on 17.3x FY26 EV/EBIT," said Berenberg. "This still yields about 35% upside to its current share price."

Shore Capital downgraded Serco on Wednesday after the outsourcer said last week that it had lost its long-running Australian immigration detention centres contract and estimated that changes to employer national insurance contributions would increase labour costs by £20.0m a year.

The broker, which cut its rating on the shares to 'hold' from 'buy', said that while it's disappointing that Serco has lost the contract, it is waiting "to understand the reasons for the loss" and noted that AsiaPac remains a strategic market for the company.

Shore forecasts for FY24 remain unchanged. However, taking Australia and NICs together, it cut its revenue forecasts for FY25 and FY26 by 3% and 4%, respectively. It also reduced EBIT estimates by 11% and 13%, respectively. Shore said its FY25 adjusted earnings per share forecast falls by 14% to 15.1p and by 16% to 16.2p for FY26.

"Whilst we still see long-term opportunity for outsourced services to Government, the medium-term outlook feels to have tightened somewhat; noting lower capital returns and potentially higher risk; we await to see how opportunities develop," it said. "We also feel that strong exposure to UK Government is likely to be seen as a negative issue for a period."