Broker tips: Trustpilot, Centrica

1st Jul 2024 15:21

(Sharecast News) - JPMorgan Cazenove placed Trustpilot shares on 'positive catalyst watch' on Monday ahead of its H1 trading update on 11 July, saying it reckons adjusted underlying earnings will come in ahead of expectations.

"We expect the greatest focus to be on adjusted EBITDA delivery, with Trustpilot now past its breakeven point and beginning to generate organic free cash flow," JPM said.

It forecasts around $10.5m of adjusted EBITDA through the period, which stands about 9% ahead of company consensus.

"Our delta versus expectations is driven by a more positive view on how much operating leverage Trustpilot can drive," it said. "Specifically, we expect sequential progress in cost leverage versus H123 across sales & marketing (S&M) expenses, helped in part by accelerating US growth (JPM estimated adjusted S&M expenses circa 30.5% of sales in H124 versus circa 31.2% in H223).

Overall, the bank said that while its H124 earnings estimates were ahead of expectations, its forecasts imply a relatively conservative sequential ramp in profitability.

JPM rates Trustpilot at 'overweight' with a 250.0p price target.

Berenberg upgraded British Gas owner Centrica on Monday to 'buy' from 'hold' and lifted its price target on the stock to 155.0p from 130.0p.

The bank said Centrica's strong balance sheet, with nearly £3.0bn of net cash, continues to afford it optionality, which leads it to a more constructive view of the investment case.

Berenberg said the upgrade was supported by its expectation that the group will use £1.0bn of its cash to extend its share buyback programme.

"The buyback helps to ease the effect of a commodity-driven normalisation of profits through the coming years, and leads us to increase our earnings per share forecasts by 13% on average for 2024E-2026E, expanding Centrica's valuation discount to the sector (7.3x/10.5x price-to-earnings and 3.4%/3.9% yield for 2024E/25E)," it said.

"While we expect the discount to remain, we expect it to narrow, which is a view that is also supported by our discounted cash flow-based sum-of-the-parts and DDM models."