Broker tips: Rightmove, Bodycote

2nd Sep 2024 13:47

(Sharecast News) - Shore Capital reiterated its 'buy' rating on Rightmove on Monday after Australia's REA Group confirmed it was considering an offer for the UK property platform, highlighting the opportunities for shareholders whether or not a takeover happens.

REA, majority owned by News Corp, said it sees "clear similarities" between the two groups, but has not yet approached, nor had any discussions with, Rightmove regarding any potential offer. The Melbourne-based firm also said that a combination of the two companies would provide a "significant opportunity" to unlock shareholder value.

"We await further developments around this unexpected announcement but, on a first-pass basis, retain an open mind regarding the potential benefit for Rightmove (which remains UK focused) shareholders of becoming part of a bigger international group which appears to have strong momentum and has delivered a strong share price performance over the last 12 months," said Shore Capital analyst Roddy Davidson.

However, Shore Capital noted that it has regularly highlighted that it believes the Rightmove was now in "a more challenging phase" with regard to the ease with which it can develop new revenue opportunities and achieve price inflation". With the stock having traded sideways over the past 12 months, the share price was sitting at a 22% discount to Shore Capital's fair-value estimate of 652.0p.

Berenberg initiated coverage of heat treatment company Bodycote with a 'buy' rating and "conservatively set" 800.0p price targe on Monday as it said the firm was an early-cycle operationally-geared industrial recovery play.

"While industrial indicators are weak and visibility is low, along with other factors we note here, the exposure to a recovery is very high compared to our broader industrials coverage," Berenberg said. "Furthermore, on a 12-month view, with comps easing and the likelihood of industrial markets stabilising, we believe that there is the potential for earnings to accelerate, although we also note that our EPS forecasts for 2025 are slightly ahead of consensus forecasts."

Berenberg said Bodycote has one of the highest exposures in its coverage to attractive aerospace and defence markets, which should underpin group growth in the medium term and also noted that it has historically maintained a strong balance sheet, with low investment requirements and resulting strong cash generation.

The German bank also pointed to an attractive valuation, with Bodycote trading on 12.7x FY 2024E price-to-earnings and 10.1x FY 2024 EV/EBIT.

"These are substantial discounts to Bodycote's own historical levels as well as the sector relative history of 15% and 16% on a P/E basis respectively," it said. "The stock has rarely traded this low in comparison to its sector, thus suggesting to us that the stock is pricing-in a lot of cyclical headwinds and not much credit for self-help initiatives."