Broker tips: Berkeley, Marlowe, AJ Bell, Ashtead, Touchstone Exploration
By Iain Gilbert
Date: Monday 09 Dec 2024
(Sharecast News) - RBC Capital Markets has cut its target price for Berkeley Group and reiterated an 'underperform' rating, saying that while the long-term picture looks intact, it has cut its forecasts for shareholder returns.
RBC lowered its target price from 4,950p to 4,700p for the stock following the housebuilder's guidance last week for shareholder returns of at least £2bn over the 10 years to 2035. RBC also cut its estimates for returns over 2026, 2027 and 2028.
Up until last week, when the housebuilder announced its new 10-year strategy (Berkeley 2035), the company had been cutting back on land purchases due to a stricter planning and regulatory environment, choosing to return more cash to shareholders.
However, with the new government being pro-growth and pro-housebuilding, Berkeley has "got its mojo back and is doing what is does best - buying land and optimising planning today to deliver higher profits tomorrow", RBC said.
"Whilst some have grumbled at the implied reduction in shareholder returns in the first half of Berkeley 2035, in our view they are missing the fact that big cash returns today shrink the business and reduce the returns of tomorrow-you can have too much of a good thing," the broker said.
Analysts at Berenberg slashed their target price on business-critical services and software firm Marlowe from 710.0p to 400.0p on Monday following the group's interim results on 5 December.
Berenberg noted that Marlowe's H1 results covered the transformational divestment of its GRC assets in June and the demerger of its occupational health division in September, with both deals realising shareholder value, as well as leaving "a more focused group" with high earnings quality, derived from non-discretionary, regulatory-driven services of its remaining testing, inspection and certification business.
"Marlowe's H1 results confirm that the TIC business has continued to deliver mid-single-digit organic growth from strong market positions in fire services (where it is the UK's number three player with a 3% market share) and water services (the number one player with a 4% share)," said Berenberg, which reiterated its 'buy' rating on the stock.
The German bank also stated Marlowe's H1 results signified in-line trading, meaning that its continuing operations forecasts remained largely unchanged - save for buyback updates.
Marlowe added that post-demerger, Marlowe trades on a target 9x FY26E enterprise value to underlying earnings multiple, still reflecting a discount to larger, more liquid peers.
Shore Capital upgraded AJ Bell on Monday to 'buy' from 'hold' following share price weakness.
"Our earnings per share forecasts are unchanged after FY24A results, despite increasing costs as investment for long-term growth accelerates," it said. "We were reassured by AJB's comments around the impact to AuA from changes to pensions tax following the Budget."
Shore continues to expect volatility in assets under administration movements when AJB reports first-quarter trading on 30 January. However, it said the long-term imperative for individuals to save for retirement remains, regardless of tax on unused pensions.
Shore said: "With a largely recurring revenue profile and sticky customer base, earnings quality is high, underpinned by a scalable platform with margin expansion potential providing significant growth optionality.
"With EPS forecast to grow at a compound 10% from FY24A-27F, FY25F price-to-earnings at more than 20x, and a progressive dividend, we raise fair value to 525p (from 465p) and our recommendation to buy."
Deutsche Bank downgraded its stance on equipment rental firm Ashtead on Monday to 'hold' from 'buy' as it said the stock was trading close to its 6,500p price target.
The bank said it remains positive about the long-term prospects for Ashtead, which is the second-largest equipment rental operator in the US.
It said Ashtead benefits from a structural shift from buy to rental and it believes the larger sector operators will benefit from scale and high service levels to customers and could also benefit from an acceleration in re-shoring activity as a result of Trump's presidency.
As far as the valuation is concerned, DB noted the shares are trading on a calendar 2025 estimated price-to-earnings of around 18x and EV/EBITDA of 8.1x.
Deutsche said downside risks include a loss of key management, a more challenging period of construction activity, greater competition and an inability to recruit skilled labour. Upside risks include an improvement in non-residential markets and an acceleration in broader re-shoring activity.
Analysts at Canaccord Genuity lowered their target price on oil and gas business Touchstone Exploration from 60.0p to 90.0p on Monday but said there was "still plenty of upside" to the stock despite recent changes in production guidance.
Following Touchstone's guidance for the remainder of FY24, and FY25, Canaccord said it had revised its forecasts to better reflect lower production expectations fuelled by higher decline rates from the company's Ortoire licence.
"We still see considerable value in Touchstone, with our new target price representing a circa 110% upside to Friday's close," said Canaccord. "However, we acknowledge the lower-than-anticipated production from the Cascadura wells has left more work for Touchstone to do to prove the value of its onshore production assets in Trinidad."
Touchstone issued updated guidance for FY25, with a new production range of 6,700-7,300 barrels of oil per day. Alongside this, Canaccord Genuity has new capex expectations of roughly $23.0m in 2025, resulting in operating cash flow of approximately $22.0m and an FY25 year-end net debt of around $30.0m.
"We reduce our estimated FY25e production to circa 7,000 boepd from our previous circa 15,000 boepd that assumed a far slower decline from the Cascadura 1ST1 and Deep wells, and we have also taken a more conservative approach to modelling any future Ortoire wells," added the Canadian bank, which reiterated its 'speculative buy' rating on the stock.
Email this article to a friend
or share it with one of these popular networks:
You are here: news
10 Lower Thames St,
London EC3R 6EN