Canaccord lowers Tyman to 'hold' following US macro uncertainties
By Iain Gilbert
Date: Friday 14 Jun 2019
(Sharecast News) - Analysts at Canaccord Genuity downgraded their recommendation for shares of engineer Tyman to 'hold' from their previous 'buy' rating, cutting their target price on the homebuilding products firm's shares to 265p from 300p after revising its estimates lower on the back of macro uncertainties.
Cannaccord highlighted recent macro data points and trading comments from peers, which it felt pointed to "an abrupt slowdown" in the US construction market, with growth "grinding to a halt".
"Residential markets have been particularly weak year to date and this is a key end market for Tyman; US public construction has been the strongest end market and the group has negligible exposure to this. In the context of weaker US markets, we cut our US forecasts for the group," said Canaccord.
The Canadian broker also noted that Tyman had recently had a "poor track record" of taking market share and with a relatively stretched balance sheet, it believed growth was unlikely to be supported by further sizeable acquisitions.
Canaccord also pointed to other potential risks stemming from further macro downside and disruptions caused by tariff changes in the US.
"While the rating looks low and the shares appear to offer value over the medium term as management improves operational performance, this will take time to deliver and show through," said Canaccord.
"In the near term, trading conditions in the US have become more challenging than expected earlier this year and leverage continues to be relatively high compared to peers."
As a result of its concerns Stateside, Canaccord cut its 2019 pre-tax profit estimates on Tyman to £79m from £82.5m and lowered its revenue forecast to £644.3m from £654.7m, noting it would likely be 2020 at the earliest that investors could expect to see any results from operational improvements.
"Shares are on a low rating at c.6.5 times EV/EBITDA for 2019E with a dividend yield of c.5.5%. There is clearly potential for a re-rating but with weak US markets hampering earnings momentum and it still being early days for the new CEO and CFO, we are cautious in the near term despite the low rating," concluded Canaccord.
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