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Broker tips: Halma, Idox, Pets at Home

By Iain Gilbert

Date: Thursday 17 Jun 2021

Broker tips: Halma, Idox, Pets at Home

(Sharecast News) - Shares in safety equipment specialist Halma slumped on Thursday after Berenberg said the stock's valuation "remains a hurdle".
Given the valuation issue - the shares trade at 47.0x March 2022 price-to-earnings and 31.4x EV/EBITDA - the bank said it prefers buy-rated Oxford Instruments, Diploma and Spectris, all of which trade on "more palatable multiples for similar exposure".

Still, Berenberg upped its price target on hold-rated Halma to 2,575.0p from 2,385.0p, saying it remains of the opinion that there are few better long-term investments.

"Halma is one of the highest-quality companies in the UK industrials sector, in our view, having delivered a 13% earnings per share compound annual growth rate since 2005 and 45 years of uninterrupted dividend growth. It has demonstrated good resilience, but not immunity, to the Covid-19 downturn," Berenberg said.

"Looking ahead, we think expectations are well managed and, with M&A also potentially on the cards, the risk to earnings is skewed to the upside."

Analysts at Canaccord Genuity upgraded software firm Idox from 'hold' to 'buy' on Thursday due to "significant news flow" coming from the group over the last two months.

Canaccord stated that over the last two months, it had adjusted its full-year 2022 adjusted earnings per share estimates from 2.8p to 2.6p due to corporate activity and underlying growth.

The Canadian bank said that while the initial downward pressure appeared to be due to the disposal of its compliance division, more importantly, subsequent upward pressure was due to the continuing evolution of Idox into a pure-play software business.

While Canaccord moved its adjusted earnings per share forecast to 2.3p following the disposal, it changed pace and upgraded them by 13% due to its acquisition of Aligned Assets earlier in June.

"Therefore, we increase our target price to 70.0p (from 68.0p), mindful of a more focused group structure, and attach close to a Dec 22 UK IT sector average PE multiple to value the shares (we apply a c.5% discount)," said the analysts.

"We believe a 5-10% discount is appropriate given Idox's mix of only 5% top-line growth on our forecasts vs the sector at around 9% but much better margins, at over 20% vs 13%, and cash flow yield, at over 4% vs the sector at under 3%."

Liberum upgraded Pets at Home to 'buy' from 'hold' on Thursday, lifting the price target to 510.0p from 460.0p, driven by the broker's new, higher forecasts following the company's preliminary results.

The broker upped its FY22 pre-tax profit estimate by 7.5% to £126.0m, which sits slightly above the mid-point of the £120.0m-130.0m guided range. It lifted its FY23E pre-tax profit forecast by 13.2% to £144.0m.

"We acknowledge the current premium valuation (CY21 PER 24x), yet see this as justifiable for the 13.7% FY20-24E profit before tax compound annual growth rate we now forecast," it said.

"There is upside risk to this as PETS' multiple self-help levers look set to drive further outperformance versus the UK pet care market's accelerating growth."

Liberum said the re-calibration of the Vet Group is now complete with impacts fully annualised meaning greater leverage benefits, higher visibility on profit trajectory and enhanced cash flows to support an already "very strong" balance sheet.


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