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Broker tips: THG, Liontrust, Rentokil Initial, Cerillion

By Iain Gilbert

Date: Thursday 23 Jun 2022

Broker tips: THG, Liontrust, Rentokil Initial, Cerillion

(Sharecast News) - Citi resumed coverage of e-commerce group THG on Thursday with a 'buy' rating and 220.0p price target.
The bank said that amid M&A news flow, commodities and forex-driven downgrades, corporate governance debates, and questions over THG Ingenuity, the market seems to be underestimating the value of the beauty division.

It said Beauty was "a very strong player" in "a very attractive market" and could make up for the total valuation of the company on its own.

Numis initiated coverage of international distribution and services firm Bunzl on Thursday with a 'hold' rating.

The broker, which has a target price of 2,600.0p, said the stock was likely to be supported by Bunzl's track record in mergers and acquisitions.

It noted: "In a period of elevated economic uncertainty, Bunzl's defensive growth attributes should support relative share price resilience. Long-term organic growth is lower than other listed distributors, but Bunzl's track record of acquisitions has still driven shareholder value and we would expect this to continue.

"With leverage currently below the group's target range, we see scope for up to 20% update to our earnings per share estimates over three years from M&A."

Analysts at Berenberg slashed their target price on asset manager Liontrust from 1,850.0p to 1,100.0p despite the group's full-year results beating expectations, stating falling markets looked set to weigh on the stock.

Berenberg said Liontrust's recently wrapped up trading year was characterised by a "strong" level of earnings growth but noted that this had been offset by falling markets since the start of the calendar year.

"The company reported strong FY22 results with EPS of 127.6p (up by 59% yoy), c13% ahead of consensus expectations. Liontrust demonstrated strong organic assets under management and administration (AUMA) growth of £2.5bn in FY22, representing a c8% annualised organic growth rate," said Berenberg.

"That said, total AUMA fell by c12% to £34.2bn between 1 April and 17 June as a result of negative market movements driven by the conflict in Ukraine. Organic growth has actually gone into reverse since the beginning of FY23; this is understandable in light of the higher levels of uncertainty in the first part of the year and Liontrust's predominantly UK retail footprint."

Taking this into account, the German bank cut its full-year 2023-24 estimates by roughly 8-17% to reflect the current market levels but opted to reiterate its 'hold' rating on the stock.

Deutsche Bank upgraded Rentokil Initial on Thursday to 'buy' from 'hold' as it highlighted the potential for a resilient performance and benefits from the Terminix acquisition.

It said the wider pest control industry has experienced consistent growth through the cycle in the USA, with no year of nominal revenue decline since 1988, and only four in real terms.

"We believe this should result in a resilient performance in the event of weakening economy," DB said, adding that industry data indicates prices are rising to offset costs.

DB also said the Terminix deal has the potential to be significantly value-enhancing.

"The recent SEC filing indicated that Terminix's own internal projections are substantially higher than market forecasts for 2023+ and they assume $175.0m synergies are possible," the bank said.

Deutsche left its price target on Rentokil shares unchanged at 550.0p.

Analysts at Canaccord Genuity hiked their target price on software Cerillion from 950.0p to 1,100.0p on Thursday as they raised their estimates for the group and labelled expectations as "conservative".

Canaccord Genutiy said Cerillion's recent interim results showed an "encouraging" growth in organic sales of about 25% and temporarily elevated underlying earnings margins of 39%, with some normalisation likely in the second half of the year due to salary inflation.

The Canadian bank stated backlog was slightly down year-on-year and sequentially due to the timing of larger deal signings, which the company expects to accelerate in the second half. It also noted that new customer momentum was "strong", with the new logo sales pipeline up 31% year-on-year at £172.0m.

"We have raised our revenue, EBIT & EPS forecasts with our/consensus estimates implying a 67:33 1H:2H EBIT split - this seems conservative compared to the 45:55 historical average and in our view implies scope for upside," said Canaccord.

"The shares' current ~29x cal. '23 P/E is broadly inline with UK peers such as Aptitude, Netcall and Alfa FS despite superior top line and EPS growth. Our new target is based on a cal. 2023 P/E of 34x, a 25% premium to listed peers due to its superior growth and higher margins."


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