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Broker tips: S&U, Oxford Metrics, 888 Holdings, Flutter

By Iain Gilbert

Date: Monday 03 Oct 2022

Broker tips: S&U, Oxford Metrics, 888 Holdings, Flutter

(Sharecast News) - Analysts at Berenberg lowered their target price on motor finance and bridging lender S&U from 2,660.0p to 2,180.0p on Monday but said the group had still managed to deliver a "solid" set of results given macro headwinds.
Berenberg said S&U's interim results, published on 27 September, were ahead of forecasts for the half-year in terms of both revenues and earnings per share.

The German bank, which maintained its 'hold' rating on the stock, stated that despite "uncertain economic conditions", S&U had continued to perform strongly in both its motor finance and property bridging finance businesses.

"Both of S&U's divisions performed strongly during the half-year. Advantage Finance originated circa 11,800 new loans, up 22% compared to H1 2022 and slightly ahead of our expectations (c11.5k). Meanwhile, Aspen Bridging also reported a rise in origination volumes (+10% versus H1 2022), while it has also developed new products, including a bridge-to-let designed for smaller developers," said the analysts.

Berenberg also said it had opted to revise its forecasts going forward, primarily to account for the impact of the macroeconomic environment and the interim results.

Analysts at Canaccord Genuity reiterated their 'buy' rating on software and services group Oxford Metrics, stating it thinks current disruptions will likely be short-term in nature.

Canaccord Genuity said that after Oxford Metrics indicated there would be "some impact" to project deliveries in the first half stemming from supply chain issues, the group has since seen further disruptions in the second half - to the extent that £3.5m of shipments will be deferred to the first half of 2023.

"As such, we update our forecasts, resulting in an ~11% downgrade to revenue, and an adjusted EBIT and earnings per share downgrade of ~29% and ~27%, respectively," said the analysts, who also stood by their 130.0p target price on the stock.

The Canadian bank also highlighted that whilst there seemed to be "signs of easing component constraints", ongoing uncertainty around timing had led it to leave full-year forecasts largely unchanged, with potential upside should supply chains ease in the near term.

"We view the current disruptions to be short-term in nature and remain optimistic about the long-term opportunity for OMG as it pursues its 5-year plan (grow sales 2.5x; deliver 15% PBT margin). The ~£68m net cash balance at 1H22 (66% market cap) leaves OMG well funded to pursue accretive M&A, which we estimate could deliver EPS uplifts of 32-96% (see overleaf)," concluded Canaccord.

Analysts at Deutsche Bank lowered their target prices on bookmakers 888 Holdings and Flutter on Monday as it looked at the impact of a longer than initially expected high interest rate cycle on the European leisure sector.

Deutsche Bank dropped its target price on 888 from 296.0p to 230.0p and cut its target on Flutter to 13,500.0p from 13,820.0p but reiterated its 'buy' rating on both stocks.

Justifying its move, DB noted that central banks across the developed world were now looking to fight the inflation battle, with markets now seeming to suggest that we are in a higher interest rate cycle for longer than earlier envisaged.

"We consider the impact on income statements (on FY'23e net income), given the higher cost of debt (after considering hedges in place), as well as on valuations (where we use a DCF), with an increase in WACC as the outcome," said the analysts.

However, what the German bank said was not in the analysis was any adverse impact on demand, from higher interest rates squeezing disposable incomes as, at this stage, pubs have been the only subsector to identify any material impact from weakening consumer spending.

"The rise in interest rates will impose further pressure on discretionary spend, and we will continue to monitor these pressures and discuss the potential impact in future research notes," said DB.


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