Broker tips: AO World, Photo-Me, PageGroup, Hays
Jefferies upgraded online electricals retailer AO World on Monday to 'buy' from 'hold' as it pointed to an "attractive" entry point into a "structural winner with a huge long-term growth runway" after the shares had fallen 44% year-to-date.
The bank, which stood by its 400.0p target price on the stock, said AO's recent full-year results marked an outstanding year with revenue growth of 59%, group underlying earnings up 191%, and positive trends across categories, KPIs and countries.
"The pandemic clearly presented a substantial tailwind, but we think much of what was achieved equally reflects the fundamental qualities of AO’s business model and the substantial investments made during the year. Moreover, we think many of the benefits are set to roll into future years.
"On the back of an outstanding FY21, AO is taking the opportunity to invest in driving an accelerated growth trend and is aiming to double revenues by FY26," it said.
Reflecting the opex elements of AO's announced investments, Jefferies cut its FY22 EBITDA estimate by £28.0m to £53.0m but materially upgraded its UK revenue expectations. It had previously forecast UK revenue growth of 1.5% in 2022 but stated it was now looking for growth of 10%. By FY23, Jefferies expects UK revenue of £1.8bn, up 19% on its previous estimate.
Analysts at Canaccord Genuity issued photo booth operator Photo-Me International with a 'buy' rating on Monday after having previously placed the stock 'under review'.
Canaccord said the interim results from Photo-Me were "better than expected", driven by continued double-digit revenue growth in laundry and "an encouraging performance" from its identification unit that led to photo booth revenue seeing "a fast-paced" second-quarter recovery.
The Canadian bank said strong demand in Japan from higher than normal applications for the firm's My Number ID cards had also provided a one-off boost.
"As a result, in H1'FY21E Photo-Me delivered 76% of the revenue and 62% of the adj. EBITDA that it reported in the pre-pandemic six month period to 31 October 2019," said the analysts.
Canaccord also pointed out that Photo-me has now completed a restructuring programme initiated at the start of the Covid-19 pandemic and was seeing "improving levels of cash generation" that reflected some recovery in consumer activity across key geographies.
RBC Capital Markets upgraded its stance on shares of recruiters PageGroup and Hays on Monday, citing improving confidence for the former and an attractive entry point for the latter.
Hays was lifted from 'sector perform' as RBC said that as confidence in the sustainability of the global hiring recovery grows, Hays' lacklustre year-to-date share price performance versus the wider UK market and 13% underperformance versus PageGroup looked anomalous.
"We believe the forthcoming Q4 update is likely to lead to upgrades to FY22 estimates and, though we leave our currently top-end EBITA estimates essentially unchanged, we raise our medium-term EBITA and free cash flow estimated, driving up our discounted cash flow-derived price target to 195p from 150p and upgrade our rating to ‘outperform’," it said.
PageGroup was also lifted from 'sector perform' to 'outperform' and its price target boosted from 525.0p to 700.0p.
"Following strong Q2 fee performance, ongoing positive recruitment survey results, cost control, productivity improvements and improving tax efficiency, we raise our FY21 earnings per share by a huge 53%," RBC said.
"The shares now look too cheap given the pace of profit and cash recovery and we believe investors will see more than 20% of market cap returned to them in the next three years."