Broker tips: Trainline, Softcat
By Iain Gilbert
Date: Monday 28 Oct 2024
(Sharecast News) - Shore Capital has reiterated its 'buy' rating for Trainline after the bookings platform upgraded its full-year guidance on Monday, predicting significant upside for the stock from current levels.
The company said it expects net ticket sales to increase by 12-14% in the year to 28 February 2025, up from a previous target of 8-12% growth, while revenue growth is tipped to be 11-13%, up from 7-11% previously.
Shore Capital's upwards revisions come after a 14% increase in net ticket sales to £3.0bn in the first half ended 31 August, with revenues rising 17% to £229.0m. Adjusted EBITDA meanwhile rose 44% to £82.0m.
"We are pleased to see the update this morning and continue to see Trainline as a dominant player within the UK rail network, set to benefit from the increasing digitalisation demand from consumers," Shore Capital said in a research note. "Beyond this, we believe the international opportunity, which is building, is not factored into the current group multiple."
The broker said Trainline trades at an enterprise value-to-EBITDA ratio of just 10, a discount to the wider UK platform sector despite expectations of strong double-digit adjusted profit growth in the coming years.
Berenberg reiterated its 'hold' rating and 1,600.0p target price on software firm Softcat on Monday, stating the group's "impressive performance" had continued.
Softcat's FY24 gross and operating profits were marginally ahead of consensus expectations, while hardware sales showed early signs of improvement.
The company also provided its FY25 outlook for the first time, guiding for double-digit growth in gross profit and high single-digit growth in operating profit.
"Softcat is one of the highest-quality names in the value-added reseller space and is well placed to continue taking market share. However, at 26.4x P/E and a 3.1% FCF yield, relative to our forecast of a 9% FY24/26 EPS CAGR, in our view the equity looks fully valued on a one-year basis," said the German bank.
Berenberg added that while FY25 guidance was not reliant on a significant uptick in hardware spend, chief executive Graham Charlton had noted that the company was seeing "very early signs of a device refresh cycle".
"As such, we have increased our FY25 and FY26 gross profit estimates by 0.7% and 1.1% respectively, and increased our reported operating profit estimates by 0.7% and 0.8% respectively."
Reporting by Iain Gilbert at Sharecast.com
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