Broker tips: Watches of Switzerland, Avation, Experian
By Iain Gilbert
Date: Thursday 26 Sep 2024
(Sharecast News) - Deutsche Bank upgraded Watches of Switzerland on Thursday to 'buy' from 'hold' and lifted its price target on the stock to 490.0p from 435.0p as it said now was the right time to revisit the WOSG investment case and its mid-term growth potential.
"Whilst we don't believe the business should be valued as a luxury proxy, as it was during Covid, currently trading on 9x price-to-earnings we see it as being valued as a low visibility retailer, which in our view, overlooks a stable earnings underpin from the supply-driven (Rolex) business," it said. "Atop this stable base, a multitude of mid-term growth opportunities remain intact and compelling (US consolidation, US market growth, Rolex CPO, branded jewellery)."
Deutsche said that from here, it thinks the mid-term potential should come back into focus, with the January 24 warning in the rear view mirror, September's trading update reassuring with confirmed FY guidance, and evidence the Rolex pipeline remains strong.
"Whilst we don't expect to see a near-term bounce back in momentum on the demand driven side of the business, we see enough opportunities to ignite enthusiasm for the story," it said. "With mid-term consensus margin expectations now looking more reasonably set, we view shares trading on Cal-25 9x as too cheap for a business that offers 12% earnings per share compound annual growth rate from FY26 with opportunity for growth beyond."
Analysts at Canaccord Genuity lowered their target price on commercial passenger aircraft leasing business Avation from 280.0p to 255.0p on Thursday, a more than 50% net asset value discount despite upward pressure on fleet and order book values.
Canaccord Genuity said that Avation had exited FY24 with a fleet of 34 aircraft and revenues of $92.4m, while net debt was reduced to $651.5m and NAV per share came in at $3.62.
The Canadian bank thinks FY25 sees further scope for improvement before moving to fleet growth in FY26 and increased focus long-term on a lower-CO2 ATR, A220 and A320NEO fleet and noted that FY24 demonstrated strong control in administrative costs, an improved balance sheet from reduced and reducing net debt, and improving risk/reward for equity.
"We think Avation continues to benefit from exposure to structural aviation growth and lessors gaining an increasing share of airline fleets," said Canaccord, which reiterated its 'buy' rating on the stock.
"We see >7% EBITDA 2024-30E CAGR, expanding NAV (which lags fleet growth), and equity expansion in the EV. Approaching 2026, we see potential catalysts including: eight leases due for renewal in FY26 could offer scope for rental rate improvement; and, new capital is due as the October 2026 bond matures. As USD interest rates potentially reduce and leasing risk reduces, we believe this could potentially deliver further risk/reward improvement for the shares."
RBC Capital Markets lifted its stance on Experian to 'sector perform' from 'underperform' on Thursday as it transferred coverage, hiking its price target on the stock to 4,200.0p from 2,500.0p.
The bank said Experian is a leading and diversified credit bureau with a leadership position in consumer services, analytics (Ascend platform), and Brazil, addressing $150bn total addressable market.
"In addition, several strategic growth initiatives, including the Insurance marketplace, Verification, Health, Targeting, and Auto, along with mortgage tailwinds and stable lending trends, should help deliver on the high single digit revenue growth," RBC said. "Cloud-native technology transformation bodes well for lowering capex and delivering 30-50 basis points annual margin expansion."
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