Broker tips: Shaftesbury Capital, Melrose Industries, LBG Media

8th Jul 2024 15:51

(Sharecast News) - Citi has reiterated its 'buy' rating on London-focused property investor and developer Shaftesbury Capital ahead of its interim results in a few weeks, predicting that profits will nearly double over the medium term.

Ahead of the company's results for the first six months of 2024 due on 30 July, Citi said it was lifting its price target for the stock by 41%.

"Increasing cyclical confidence and continued recovery from pandemic impacts we estimate, drives c80% EPS growth over five years and around 55% NAV growth," the bank said in a research note.

"In addition, as the real estate cycle grows in confidence and the company reports evidence of progress to our estimates, the current stock valuation, near historic low levels, should re-rate to higher multiples on our higher estimated valuation metrics."

The stock has performed broadly in line with the wider FTSE 250 index since the start of the year, rising by just 7.7%.

RBC Capital Markets upgraded Melrose Industries on Monday to 'outperform' from 'sector perform' as it noted the share price has fallen around 15% from April highs but said the fundamentals remain "very supportive".

The bank, which maintained its 650.0p price target, said the business was growing well and it expects further earnings upgrades. RBC sits 4% above consensus for 2024E EBITA.

RBC noted that management did not upgrade the outlook for 2024 at the first-quarter results, but said that with revenues up 8%, and the higher margin engines up 21%, momentum was strong.

"The outlook implies a relatively flat H1/H2 progression in the engine business which could prove conservative," said RBC. "Our forecast for 29% Engine margins is the main driver in our EBITA forecast being circa 4% above consensus which is set at the midpoint of the company FY guidance for £550-570m EBITA on a pre-central costs basis (we are at £582m on this basis)."

RBC added that it was also 3% above consensus for 2025E and about 6% above the company targets, which were for £4.0bn of sales with 17-18% aerospace margin pre plc cost.

Analysts at Berenberg hiked their target price on digital media publisher LBG Media from 120.0p to 140.0p on Monday, citing positive tailwinds.

Berenberg said LBG was "uniquely positioned" to enable brands to target the hard-to-reach young adult audience, with viewers growing by 23% in FY23 to 452.0m as it delivered a total of 128.0bn views in the year.

The German bank noted that LBG's revenue was split 43:57 between direct and indirect revenue. On the direct side of the business, LBG works with blue-chip brands, such as Visa, Nike, Disney and Diageo. Repeat client revenue in its direct unit was 75% of the total in FY23.

"This reflects the value that these and the other brands that LBG works with see in its offering, underpinned by the reach it provides into this valuable audience. We forecast 10% underlying direct revenue growth in FY24E," said Berenberg, which has a 'buy' rating on the stock.

"Management has outlined an ambition to reach £200.0m of revenue, which it has a 'clear line of sight' to. There is no timeline for delivery, but it did comment that it will achieve this target through a combination of organic and inorganic growth. While the lack of a timeline is unhelpful, we think this is a positive sign in terms of outlining management's ambition and where it thinks the business can get to in the medium term."

Berenberg added that LBG's shares had risen by roughly 50% since its FY23 results on 18 April and were now trading on a 15.7x CY24E price-to-earnings ratio.