Canaccord Genuity lowers target price on Redcentric

Analysts at Canaccord Genuity lowered their target price on software firm Redcentric from 190.0p to 180.0p on Thursday following the group's recent full-year earnings statement.

Canaccord noted that full-year revenues at Redecentric were £91.4m, adjusted underlying earnings were £15.2m, just shy of its £15.5m estimate due to disposals, and EBIT margin increased roughly 450 basis points year-on-year as the benefits of a "major restructuring" programme undertaken in the 2019-20 trading year now being evidenced.

The Canadian bank stated that Redcentric's outlook statement indicated a flat first-half in 2022 given "a modest Covid-19 tailwind on the horizon due to increased demand for remote access platforms, additional bandwidth and HSCN connectivity.

It also acknowledged that another UK lockdown in the first quarter of the 2022 trading year meant that larger-scale IT project decisions had been delayed further.

"Overall we forecast c.1-2% growth for FY22E (LFL as a business unit disposed of to Thales is excluded). The current net cash position and the FCF yield over 6% (sector under 3%), combined with debt firepower means 'paper free' acquisitions up to c.£75m are now possible," said Canaccord, which also reiterated its 'buy' rating on the stock.

"These should be either 'scale' where costs can be eliminated at the target, and/or to access and cross-sell product into a targets' customer base. At our new target price of 180.0p (down from 190.0p, in line with our forecasts) the PE is at a discount of 25-30% to the UK IT sector average."