Broker tips: abrdn, easyJet, Intertek, Good Energy
By Iain Gilbert
Date: Wednesday 26 Jan 2022
(Sharecast News) - Berenberg downgraded abrdn on Wednesday to 'hold' from 'buy' and cut its price target on the stock to 260.0p from 285.0p, stating the shares had disappointed in recent years, underperforming the UK index by 50% since December 2017 and 27% since December 2020.
Berenberg said the recent acquisition of Interactive Investor was supportive of long-term growth and reckons the rationale for cross-selling investment advice was sound.
"However, we expect investors to remain sceptical about the growth outlook for the core investment management business," it said.
Berenberg said that if abrdn used the £1.5bn paid for Interactive Investor to buy back shares, it would be 40% EPS accretive.
"Without meaningful buybacks, investors may question whether the core business can deliver long-term growth. This could be funded with further sales of the Indian stakes (now worth £1.2bn), but we expect bolt-on acquisitions may be prioritised," it said.
Berenberg also argued that abrdn was underexposed to exchange-traded funds.
Stifel upgraded shares of budget airline easyJet on Wednesday to 'buy' from 'hold' and lifted the price target to 750.0p from 600.0p, saying it expects the company's targeted growth strategy to make the most of the unfolding pent-up leisure demand this summer.
"We also see continued solid ancillary revenue and 'easyJet Holidays' supporting the profit recovery," Stifel said.
It now models this year's unit revenue decline at 4% versus 2019 levels, up from a previous forecast for a 9% drop, keeping its ex-fuel unit costs estimate "cautiously" at up 5% and lifting its pre-tax estimate to "almost breakeven", versus a £204.0m loss previously.
Longer-term, Stifel still expects structural pressure on margins and free cash flow.
"However, positive momentum into the summer and an attractive" relative valuation are behind the rating upgrade," said the analysts.
JP Morgan has upped its recommendation on Intertek Group from 'neutral' to 'overweight', arguing that its current valuation was unjustified relative to its peers.
In a review of the European business services sector, analyst Sylvia Barker said of the testing and product certification specialist: "Before the Covid crisis, we were in a period of modest but consistent top-line growth, when incremental improvements to sales, expenses management and cash collection made a difference.
"Intertek excelled in that environment, earnings itself a premium versus peers, which we expect to return."
Barker added: "We now believe Intertek's relative valuation to its peers is unjustified and note a return to pre-Covid growth, cash collection and cost management will drive a re-rating."
JP Morgan, which has a 6,400.0p target price on the stock, said Intertek's forward earnings per share were 4% below end-19 versus France's Bureau Veritas, which were 2.5% lower, and Swiss rival SGS, up 3% (including M&A).
Analysts at Canaccord Genuity raised their target price on renewable energy company Good Energy from 450.0p to 475.0p on Wednesday, citing the firm's mostly profitable 2021 performance and its stake in Zap-Map.
Canaccord noted that the Good Energy of today was two business lines - a UK-wide deep green supply operation, more commercial than retail, with a more than a ten-year track record of profitability, exempt from the price cap, and trading, mostly, profitably through 2021.
However, the analysts also pointed out that Good Energy also had a 50% stake in Zap-Map, an electronic vehicle charging app, which has grown in line with UK EV rollout, roughly doubling every 12 months, and has plans to expand to new geographies.
The Canadian bank, which has a 'buy' rating on the stock, stated that following the sale of its generation portfolio to Bluefield Solar Income Fund, providing it with equity proceeds of £16.0-24.0m, Good Energy should close the year with a roughly £3.0m net cash position.
In addition to this, Canaccord said Good's supply business was experiencing "unusually high working capital" of at least £15.0m above normal, which it expects to reverse going into 2023 as the UK energy market gets closer to "a new equilibrium".
"With the group likely to generate circa £8.0m in EBITDA from '23E onwards, and significant potential upside from Zap-Map, we find it difficult to justify the current share price," said the analysts.
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