Broker tips: Hays, Grainger, ConvaTec, IQE
By Iain Gilbert
Date: Thursday 09 Sep 2021
(Sharecast News) - Barclays upgraded shares of Hays to 'overweight' from 'equalweight' on Thursday and hiked the price target to 195.0p from 120.0p as it argued the market is underestimating the recruiter's growth potential.
The bank said that data from Revelio Labs shows high demand for new digital/IT roles across multiple sectors, which helps drive its forecasts around 10% ahead of Bloomberg consensus in FY23.
It also said that SG&A cost savings imply conversion margins of more than 250 basis points higher longer term, and the pandemic has created productivity improvements for net fee per head that can persist.
Barclays said it sees potential for cash returns worth more than 25% of the current market cap over the next five years, giving the shares a total dividend yield of about 5%.
The bank sees further upside to the target price if management can reiterate pre-pandemic growth ambitions, implying earnings more than 25% ahead of Barclays' outer year estimates.
Analysts at Berenberg raised their target price on residential property firm Grainger from 350.0p to 375.0p on Thursday, citing the firm's growing portfolio.
Berenberg stated that with an expanded balance sheet and development pipeline, as well as "increasingly positive market dynamics", Grainger remained well positioned to consolidate its position as the largest owner-operator of build-to-rent private rental sector assets in the UK.
The German bank opted to make an update to forecasts after Grainger's £209.0m capital raise earlier in the month and in light of market strength, increasing adjusted earnings per share forecasts by roughly 18% and non-tangible assets by 3.5%.
Berenberg, which stood by its top pick 'buy' rating on Grainger, added that with residential property values up 10% since September 2020, it expects the open market vacant possession value of the company's regulated tenancy portfolio to have increased by "a similar amount".
JPMorgan Cazenove upgraded medical products company ConvaTec to 'overweight' from 'neutral' on Thursday, lifting the price target to 272.0p from 229.0p as it pointed to an attractive entry point.
The bank said the revision of 2021 guidance at the first-half results understandably led to some concerns over the trajectory of margins, with consensus now forecasting an underlying contraction in 2022.
"We see this as an overreaction, and we are comfortable forecasting a circa 20% operating margin in 2022 (consensus at around 19.2%)," it said.
"Longer term, the potential of the business does not look to be reflected in the current price. We see the weakness post H1 results as offering an attractive entry point for a longer-term holding as the credibility continues to grow of the turnaround on the topline and margin."
Analysts at Canaccord Genuity upgraded semiconductors firm IQE from 'hold' to 'speculative buy' on Thursday, stating momentum appeared to be "about to inflect".
Canaccord said IQE investors could be forgiven for thinking that good years were "more often than not" followed by bad ones - with solid outperformance in 2017 and 2020 followed by "leaner years".
However, while the analysts stated 2021 saw several demand drivers soften in its photonics and wireless unit, organic growth slow to broadly flat year-on-year and foreign exchange lead to a roughly 8% hit to reported revenues and 25% to underlying earnings, they also added that they believe 2022 will see top-line growth accelerate to more than 10%.
The Canadian bank, which also upped its target price on the stock from 55.0p to 65.0p, reckons this will take place due to an expected sharp recovery in Chinese 5G base station deployments, growth in 5G smartphones and an annualisation of the impact from smaller VCSEL chip sizes at Apple and a weakened US dollar.
"With our expectation for growth and earnings momentum to accelerate in 2022E, we view this as a compelling buying opportunity. We believe the relatively depressed valuation could also trigger potential M&A interest, as IQE is the largest independent compound wafer & materials supplier with strong market positions in GaN & GaAs," said Canaccord.
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