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Broker tips: Halma, Genuit

By Iain Gilbert

Date: Friday 14 Jun 2024

Broker tips: Halma, Genuit

(Sharecast News) - Analysts at Berenberg hiked their target price on safety equipment business Halma from 2,295.0p to 2,450.0p on Friday following the group's full-year earnings report a day earlier.
Berenberg said Halma's FY24 results were "good", with a slight consensus beat on adjusted pre-tax profits, strong cash generation and good outlook commentary that it thinks underpins small consensus upgrades.

However, Berenberg said the ensuing 13% positive reaction in the share price which reflected said upgrades, as well as continued delivery from the Halma team and optimism regarding the firm's specific exposure to data communications technology trends, was somewhat of an "overreaction".

"While we do not doubt that the group is trading well heading into FY25, there is a risk that the market is pricing recurring growth of the level seen in H2 in the photonics business, which we expect will be difficult to maintain and will be balanced against other more-subdued parts of the portfolio," said the German bank, which reiterated its 'hold' rating on the stock.

"We make small upwards revisions to our forecasts to reflect the FY24 results beat and the slightly better-than-anticipated guidance. We upgrade our organic growth expectation to 6.6%, with 2.6% from M&A being offset by a 1.3% FX headwind - resulting in overall revenue growth of 8%, a 21% adjusted-EBIT margin and a c2% upgrade to FY25 EPS."

RBC Capital Markets initiated coverage of Genuit on Friday with a 'sector perform' rating and 515.0p price target, noting that the share price has rebounded more than 70% since October 2023 to trade near its long-term EV/EBIT multiple of 13x above the peer average of about 12x.

"This reflects an expected turnaround in underlying UK markets late 2024E," RBC said. "Our forecasts assume a flat 2024E, followed by underlying market recovery, driving revenue and EBIT compound annual growth rate of circa 5% and circa 8% through 2026E."

The bank said this was the low end of Genuit's mid-term target of outgrowing the market by 2-4%, as it maintains caution on the timing and scale of a turnaround.

RBC said Genuit was well diversified across UK domestic markets, focused on both new build and repair, maintenance and improvement, as well as commercial and residential construction.

"These divisions are well positioned in their respective markets with strong growth potential aligned with structural drivers and supported by leading market positions, margin expansion potential, and highly fragmented markets creating opportunities for acquisitions," it said.


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