Berenberg lowers target price on Shearwater despite 'reassuring trading update'
By Iain Gilbert
Date: Monday 30 Mar 2020
(Sharecast News) - Analysts at Berenberg lowered their target price on software provider Shearwater Group from 500.0p to 400.0p on Monday despite the firm's "reassuring trading update" from last week.
The AIM-listed group confirmed that its shift to remote working had not created material disruption to the provision of services to its customers and most importantly, it stated that for the current trading year, it had not yet witnessed any "material impact" on the profitability of its cash flow as a result of the Covid-19 pandemic.
Shearwater added that the recent increase in remote working had actually resulted in SecurEnvoy, 8% of group revenue and roughly 20% of underlying earnings, enjoying increased demand for its multi-factor authentication solutions.
"This has led to a number of new contract wins and existing clients have upgraded their contracts. This heightened demand should help underpin our software division forecasts," said Berenberg.
While Shearwater indicated that it had not yet noticed any material impact on the profitability and did not change its guidance, Berenberg chose to cut its underlying earnings estimates by 25% as it now anticipates some delays to contracts, disruption to utilisation and "a more challenging sales environment" for the coming year.
However, the German bank noted that it does not believe Covid-19 will affect the group's attractive M&A and organic medium- to long-term opportunities.
"While the economic impact of Covid-19 restrictions on economic and social activity have the potential to disrupt SWG's near-term trading, we believe its mid-term equity story remains unaffected," said Berenberg, which also reiterated its 'buy' rating on Shearwater.
"On a medium-term view, we continue to believe in SWG's strategy to consolidate its highly fragmented market which, in conjunction with the robust medium- to long-term secular growth in cyber security, makes us confident that SWG can deliver material growth over the coming years."
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