LONDON (ShareCast) - (Sharecast News) - Two and a half years into a strategic pivot, Morgan Advance Materials is nearing a potential "tipping point", analysts at JPMorgan Cazenove believe, leading them to upgrade their rating and target price.
Cazenove sent notes to clients on Tuesday giving its "tactical views" heading into the UK capital goods reporting season, where half-year numbers are expected to be generally strong but a complex macroeconomic backdrop "makes share price moves difficult to call". First-quarter trading updates confirmed a good start to the year for most, with commentary on activity levels in the second quarter remaining solid, but a challenge comes from concerns about a slowdown "which may lead to cautious outlook statements".

On all metrics, however, Morgan Advanced Materials was currently seen as "one of the cheapest" in the analysts' European capital goods coverage.

The analysts, led by Glen Liddy and Andrew Wilson, upped their recommendation to 'overweight' from 'neutral' and increased its price target to 390p from 345p, saying chief executive Pete Raby was clear back in early 2016 when he outlined his six strategic objectives to drive sustainable profitable growth that it would be a three- to five-year improvement programme.

Progress in the first two and a half years has been "masked" to some degree, but the next 12-24 months are expected to produce more "noticeable results", and upside for the company and its shares.

Ahead of interim results on 26 July, adjusted EBITA forecasts have been upped 3-4% for 2018 to £122m and 2019 to £131m, putting Cazenove 2% ahead of company compiled consensus. EPS for 2018 is forecast at 23.86p and 2019 at 27.75p.

The shares are supported by around a 7% 2019 free cash flow yield and 3.3% dividend yield.

Elsewhere in the sector, preferred stocks ahead of results are Melrose, Spectris and Weir, which are all reiterated as 'overweight'.

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