Broker tips: XPS Pensions, John Wood Group
By Iain Gilbert
Date: Monday 18 Nov 2024
(Sharecast News) - RBC Capital Markets lifted its price target on XPS Pensions on Monday to 395.0p from 355.0p ahead of first-half results.
RBC said it was "marginally" increasing both revenues and costs across FY25-27, with a broadly neutral net impact on earnings.
"We update our price-to-earnings valuation multiple to 20x (from 18x) reflecting the longer-term sustainability of XPS's growth, and its extended track record of earnings growth delivery," it said.
The Canadian bank also maintained its 'outperform' rating on the stock.
Analysts at Berenberg slashed their target price on engineering and consulting business John Wood Group from 150.0p to 60.0p on Monday, stating an independent review into its projects business had created "substantial uncertainty".
Berenberg noted that Wood Group issued a "weak" Q3 update on 7 November, with the shares trading down roughly 60% since. Although 2024 underlying earnings guidance was maintained, Wood's reference to "significant" free cash flow from 2025 was dropped.
Most notably though, Berenberg noted that an independent review has been launched to determine whether any prior-year adjustments were required on contracts in Wood's projects business, creating significant uncertainty.
"Based on a sum-of-the-parts valuation, we estimate that the current share price effectively implies no value for the projects business. Given the recurring issues within this business, including historical write-downs, exceptional cash outflows and now the uncertain outcome of the review, we believe that this is not unreasonable until more clarity is provided," said Berenberg, which reiterated its 'hold' rating on the stock.
"We still think that the market requires evidence of actual FCF generation in 2025 before credit will be given for any turnaround in the underlying business."
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