LONDON (ShareCast) - (Sharecast News) - RBC Capital Markets initiated coverage of support services group DCC at 'outperform' on Friday with a 9,500p price target, saying the valuation looks undemanding versus other distribution and defensive growth names in business services.
"DCC should be a key holding given the strength of its operating model, consistent cashflow and return characteristics and earnings upside potential from consolidation opportunities in its fragmented end markets," RBC said.

It added that the stock's recent underperformance is a buying opportunity, given the valuation versus growth dynamics.

RBC pointed out that DCC's growth has been driven by a combination of organic growth and acquisitions, with the company having spent some £.27bn on acquisitions since its IPO in 1994.

"]"This has delivered average earnings and dividend compound annual growth rate of over 10% for the past ten years with an enviable return profile," it said, adding that it sees no reason why this positive growth trajectory should not continue.

In addition, it highlighted the M&A opportunity in the US following the company's recent entry into the liquefied petroleum gas and healthcare markets, which it reckons will become key areas of acquisition focus.

"In our view, DCC could comfortably spend £400m per annum on M&A whilst not getting close to its self-imposed leverage ceiling of 2.0x," RBC said.

At 1050 BST, the shares were up 0.8% to 6,790p.

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