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Broker tips: Dominos Pizza Group, XP Power, Arrow Exploration

By Iain Gilbert

Date: Tuesday 20 Feb 2024

Broker tips: Dominos Pizza Group, XP Power, Arrow Exploration

(Sharecast News) - Jefferies upgraded Domino's Pizza Group on Tuesday to 'buy' from 'hold' and lifted its price target on the stock to 430.0p from 410.0p.
The bank said the upgrade was driven by new management, improved growth prospects, easing cost inflation, and likely shareholder returns.

"We see upside from higher growth, supported by our regional store screening analysis," Jefferies said.

Jefferies also noted that its earnings per share estimates were 6% to 8% ahead of consensus in FY24-FY25, with its upside case reflecting a step-up in store growth.

"We expect a March catalyst from an updated store growth target," it added.

Analysts at Berenberg lowered their target price on power supply solutions group XP Power from 1,700.0p to 1,400.0p on Tuesday but said its thesis on the stock was unchanged.

Berenberg said XP Power's trading update on 16 February was "disappointing", guiding to a full-year 2024 performance that was "significantly below market expectations", while also revising down FY23 profitability on account of financial close processes identifying additional impairments and amortisation-related items.

The German bank noted that the speed of deterioration in trading prospects, having last heard from management on 10 January, was "a surprise" and raises likely questions over credibility following October's profit warning and resulting equity raise.

However, while this will weigh on the shares in the short term, Berenberg thinks its thesis remains largely unchanged, albeit from a lower starting point in both fundamentals and share price.

"A recovery in the semiconductor industry capex cycle and an improving macroeconomic backdrop, both expected at some point in H2 2024, could trigger an upgrade cycle from now-reset conservative forecasts, with the company set to rebuild from trough margins," said the analysts. "We think a 15x P/E multiple for FY 2025 as a recovery year remains achievable, and so reiterate our 'buy' recommendation but with a reduced price target of 1,400.0p."

Analysts at Canaccord Genuity hiked their target price on exploration and production business Arrow Exploration from 40.0p to 44.0p on Tuesday following "a very encouraging start" to the group's extensive 2024 drilling programme.

Canaccord Genuity said Arrow's CN-4 well was now producing at gross 478 barrels of oil per day 13 API crude, being managed to maximise well recovery from the high-quality Ubaque reservoir, something the bank called a "solid start".

When it comes to CN-5 on the Carrizales Noroeste prospect, the first of three exploration targets in 2024, Arrow has confirmed the westerly extension of the Ubaque reservoir at CN field, with 45 feet of "excellent quality oil reservoir".

"A very good result so far, with well completion for production over the next few weeks and the company anticipating reserves additions," said the analysts, who reiterated their 'buy' rating on the stock.

Looking ahead, the Canadian bank noted Arrow's total planned 15 wells, with a net $45.0m budget, targeting the extensive Carrizales Norte field development and three low-risk exploration targets that could be brought on-stream quickly. Canaccord also highlighted that at the end of 2023 there were 12 producing wells on two Tapir fields and by the end of 2024, that could have more than doubled on up to five fields.

"We make a number of small changes to our production outlook which combined trim 1.0p from our risked NPV12.5 central valuation, now 39.0p," said Canaccord. "However, while we do not yet factor in production from this year's exploration targets, we now include a risked value for those in our target price."


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