Canaccord Genuity lowers target price on James Fisher

Analysts at Canaccord Genuity lowered their target price on oilfield service firm James Fisher & Sons from 550.0p to 425.0p on Friday as they questioned what makes the stock expensive.

Canaccord Genuity said James Fisher "has a long traded history as a public company", noting that for much of the period between 2004 and 2019, it enjoyed a premium multiple, typically trading at around 20x two-year forward earnings.

However, since early 2020 its rating has fallen, troughing at just over 5x in the dog days of summer 2022. It has since recovered above 10x, in line with a broader market recovery.

The Canadian bank updated its numbers to reflect the new divisional reporting structure and current consensus, but for the analysts the key question was what would have to be true to make the stock expensive.

"We believe it is one or both of the company being unable to regain financial stability, or earnings being at risk. Neither looks likely, in our view, largely as Fisher is exposed to cyclical businesses where the trough is now behind us," said Canaccord, which reiterated its 'buy' rating on the stock.

It also noted that a Fisher update was "somewhat overdue" and its figures were "a substantial cut", taking around £12.0m-15.0m off forecast 2023-24 underlying earnings, with larger impacts on earnings and on dividends.

"We base our target price primarily on multiples. At our new 12-month target price the stock would trade at 16/11x 2024E/25E price-to-earnings ratio, which we believe is a realistic assessment of the multiple on the assumption of a return to broad market stability and a continued cyclical recovery in Fisher’s earnings. We note we now assume a resumption of a dividend from mid-year 2025," said Canaccord.

Reporting by Iain Gilbert at Sharecast.com