Broker tips: Coats Group, Frontier Developments
By Iain Gilbert
Date: Friday 22 Nov 2019
(Sharecast News) - Shares of industrial thread maker Coats Group slumped on Friday as it said that sales in the four months to the end of October slowed.
With the shares down more than 7%, RBC Capital Markets highlighted three reasons to buy the shares on weakness: the fact that Coats is still "a very stable business", an expected recovery in medium-term growth and an attractive valuation.
"We still see Coats as attractive despite a reduced 2019 outlook," it said. "It remains a stable business - despite a tougher macro backdrop, sales are flat year-on-year in H2 to date and EBITA is still growing slightly year-on-year.
"We expect some of the drags on sales to alleviate such that growth will improve in 2020E and the valuation is attractive on 8x20E EV/EBIT / 12x20 price-to-earnings."
RBC cut its price target on the outperform-rated stock to 90p from 105p to reflect a more conservative discounted cash flow valuation as it reduced its forecasts to account for revised guidance. Its 2019 earnings per share estimate was reduced 4% and its 2020 estimate came down 3%.
Analysts at Berenberg raised their target price on shares of British video games group Frontier Developments to 1,600p from 1,350p on Friday, saying the company appears to be nearing an inflection point.
Berenberg made the move after a "strong" trading update from Frontier on 15 November, with its Planet Zoo title selling more units on PC on day one than any of its previous titles.
While the group's full-year 2020 guidance was unchanged, the German bank said that given the strength of Planet Zoo sales and audience engagement, Frontier's current guidance now looks "conservative" and there is over 27% upside to 2020 group pre-tax profit estimates.
In addition, Berenberg highlighted the fact that Frontier also announced material updates for its Planet Coaster and Elite Dangerous titles in 2021 and confirmed three major IP releases for 2022.
"These support our view that Frontier's game pipeline is nearing an inflection point, and we increase our FY 2022 EBIT estimate by 14% as a result," it said, reiterating its 'buy' rating.
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