Broker tips: Currys, Essentra
By Iain Gilbert
Date: Tuesday 24 Sep 2024
(Sharecast News) - Canaccord Genuity has initiated coverage on workforce benefits and health insurance provider Personal Group on Tuesday with a 'buy' rating and 209.0p target price.
Canaccord Genuity noted that in H1, roughly 80% of group revenues were recurring in nature and said retention rates in insurance were "impressive" at over 80%.
The Canadian bank also pointed out that following the adverse impact of the Covid-19 pandemic, particularly on new insurance sales through the group's differentiated face-to-face model, the business now continues its return to profitable growth.
"Our forecasts imply an EPS CAGR of 22% over the period FY23-26E. We expect an 80% payout ratio going forward (long-run average: 86%), resulting in an 8.0% yield for FY24," said Canaccord.
At this stage, Canaccord believes price-to-net asset value to be the most appropriate valuation methodology, given the dominance of Personal Group's insurance earnings. If management executes on its aspirational plan, resulting in increased contribution from its software-as-a-Service business, the analysts said they could consider a sum-of-the-parts approach as being equally appropriate.
"We apply a 2.0x target P/B multiple applied to FY24E NAV. We justify the multiple based on the average of FY25E-26E ROE, which is 19.3%. The implied upside to our 209p target price is 28% and TSR is 36% which supports our 'buy' rating. Our target price implies price-to-earnings multiples of 14.3x in 2024E falling to 11.0x in 2025E."
Analysts at Berenberg lowered their target price on essential components manufacturer Essentra from 255.0p to 200.0p on Tuesday, citing a weak market backdrop.
Essentra reported an unscheduled trading update on 17 September, which revealed softening European market conditions and a slower-than-anticipated rate of recovery in the Americas meant that management haf rebased its adjusted underlying earnings guidance for FY24 from £48.4m-49.7m to £40.0m-42.0m.
"While this reduction is disappointing, especially so soon after the group announced a tentative return to sequential and year-on-year like-for-like revenue growth during Q224, the update is perhaps of no surprise given the worsening PMI index data from the eurozone," said Berenberg.
The German bank moved its FY24 EBIT forecasts to the bottom end of the newly provided range, a roughly 19% downgrade, and reduced its price target by the same.
"We continue to regard Essentra as well placed to benefit from an eventual recovery in the backdrop, having been somewhat validated by Essentra's correlation with PMI as per this update, therefore suggesting that upside risk exists for our outer year forecasts," said Berenberg, which reiterated its 'buy' rating on the stock.
Berenberg added that Essentra currently trades on a 13.7x FY25 price-to-earnings ratio.
Reporting by Iain Gilbert at Sharecast.com
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