Broker tips: Tate & Lyle, DotDigital, Fresnillo, Harmony Energy
By Iain Gilbert
Date: Thursday 27 Jan 2022
(Sharecast News) - Barclays resumed its 'overweight' coverage on Tate & Lyle on Thursday with a 930.0p price target as it pointed to a "new era" with significant total shareholder return potential.
The bank said Tate's announcement confirming the separation and sale of its Primary Products assets in July 2021 didn't prove to be an immediate positive catalyst.
"However, as the deal nears completion we think the market has better digested its complexity as well as the initial sticker shock from earnings dilution (which balance sheet firepower can diminish) so is now able to focus on the opportunity that lies ahead," it said.
"There have been false dawns on Tate's journey from commodity processor to value-added solution provider, but this transformative deal represents a repositioning that fundamentally increases the structural growth opportunity for Tate's portfolio of ingredient solutions.
"With a highly credible ExCo and board, we believe Tate is entering a new era that could provide significant TSR opportunity from both growth and re-rating."
Analysts at Canaccord Genuity cut their target price on software firm DotDigital from 265.0p to 205.0p on Thursday but stated the group still appeared to be on track for profitable double-digit growth.
Canaccord Genuity said following record organic growth in the last financial year, DotDigital's recent first-half trading update indicated somewhat slowing momentum, with organic sales growth of 10% to £30.9m.
Based on the statement, the analysts believe growth in DotDigital's largest market, the UK, was in the double digits, with some slowdown in SMS momentum in verticals that heavily increased usage last year during Covid-19 lockdowns, while Asia-Pacific growth of 27% was also encouraging.
However, the Canadian bank noted that DotDigital had seen "a meaningful slowdown" in the US, where new sales had been impacted by a tight labour market and high salary inflation, which made it difficult to backfill sales roles in the region.
"Given ongoing expected revenue and earnings per share growth and high recurring revenues and margins, we maintain our 'buy' rating with a reduced target price of 205.0p (was 265.0p), based on 7.5x calendar 2023E enterprise value/sales," said Canaccord.
RBC Capital Markets downgraded precious metals miner Fresnillo on Thursday to 'sector perform' from 'outperform' and slashed its price target on the stock to 575.0p from 1,025.0p.
The bank said Fresnillo's fourth quarter was modestly better than it expected but lower guidance on operational challenges, especially at Saucito, have driven its FY22 silver production estimate down 22.8%.
"This sees RBCe EBITDA fall by 49%," RBC said. "Free cash flow falls around $500.0m to -$21.0m."
RBC said that despite structural signs of improvement, the near-term outlook should stay weak as operations are likely to stay hamstrung until Q4 22.
"Although the company remains fundamentally well positioned (net cash, growth from Juanicipio) we have trouble seeing shares recapture a premium rating over the coming 12 months," it said.
Analysts at Berenberg initiated coverage on renewable energy business Harmony Energy on Thursday, stating the firm was its 'preferred pick' in the sector as its longer-duration batteries would likely drive higher returns.
Berenberg said Harmony Energy, which listed on the London Stock Exchange in November 2021 with a market cap of £210.0m, intends to invest primarily in battery energy storage systems in Great Britain using two-hour lithiumion battery technology.
The German bank noted this represents "a unique opportunity" for investors as the majority of battery energy storage systems in the UK were 0.75-1.25 hours in duration.
Berenberg highlighted that battery energy storage remains "an underdeveloped asset class", with roughly 1.2 gigawatts built and operating today, versus a potential energy storage requirement of up to 43.0GW by 2050.
"HEIT targets an attractive dividend yield of 8% per annum from 2023 and an unlevered net asset value total return of 10% pa. It trades at NAV, an attractive valuation compared to its closest peers who trade at an average premium of 14%. HEIT is our preferred pick in the sector," said the analysts.
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