LONDON (ShareCast) - (Sharecast News) - Morgan Advanced Materials rallied on Monday as Berenberg upgraded its stance on the stock to 'buy' from 'hold' and upped the price target to 420p from 330p as it said the first half results showed significant progress.
The bank noted that when it initiated coverage at 'hold' in September 2017, it had some concerns about organic growth and free cash flow generation. However, it said that since then, management has more than delivered on each of these metrics, a highlight being the 7.8% organic growth delivered in the first half of 2018.

In addition, the shares are up 17% since September, which Berenberg said begs the question whether it and potential new investors have missed the boat.

"We think not and believe this is just the start to further strong delivery," it said, as it increased its estimates by around 10%.

As far as the H1 numbers are concerned, Berenberg said the 7.8% organic sales growth and 12.4% organic EBITA growth were much stronger than it had expected, with improvements across every end market except industrial gas turbines.

"We have become increasingly confident that Morgan is now in the best shape it has been for many years. Financially, organic growth of 6.7% (2018E) and return on capital employed of 17.1% (2018E) are the highest since 2011 when Morgan was recovering from the financial crisis, and leverage of 1.1x (2018E) is the lowest since 2007.

"Cash generation has also significantly improved and our free cash flow forecast for 2020E is now 40% higher than 10 months ago. Operationally, the company now seems better positioned in more attractive end-markets with an improved, more streamlined organisational structure."

At 1100 BST, the shares were up 5.1% to 369.40p.

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