Broker tips: Close Brothers, Renishaw, Aston Martin Lagonda
Analysts at Berenberg lowered their target price on merchant banking group Close Brothers' shares to 1,410.0p from 1,460.0p following the second consecutive cautious trading update from the company.
Berenberg pointed out how Close Brothers shares had fallen following the update, with a combination of lower growth and margins in the banking division being the primary factors behind the market’s reaction.
As a result, the German bank lowered its operating profit estimates for Close's banking division from £253.0m to £240.0m, which in turn dragged on its group profit forecasts, return on equity and price target.
"Given the late stage of the cycle, and Close's risk-focused strategy, these results are not surprising," said Berenberg.
However, the analysts also said: "If anything, the trading update should give investors confidence that management is adhering to its strategy".
Berenberg said its overall view on Close remained unchanged at 'hold'.
"Close is a great business. It is well run, high margin, well capitalised and has a long track record of profitable operating performance," said Berenberg.
However, the analysts noted that if current trends persisted, there was the potential for numbers to be reduced further in the short run, although that would hopefully create an opportunity to 'buy' the shares "cheaply".
Analysts at Morgan Stanley upgraded their recommendation on shares of British engineer Renishaw to 'overweight' on Thursday as it forecast a "strong inflection" in machine tool data by mid-year.
Morgan Stanley said consensus estimates for Renishaw, with its growth, multiple and share price all "strongly correlated" to the Asian machine tool series, did not capture the potential strength of the inflection and also jacked up its target price on the firm's shares from 2,800.0p to 4,500.0p.
The analysts said that with Renishaw's shares having "materially underperformed peers" and "currently being out of favour", they saw the stock's current levels as "an attractive entry point".
They also noted that by its implied valuation, Renishaw will be back below long-term averages and that it will inevitably move from having one of the most expensive to the cheapest valuation amongst global automation plays.
The MS Quant team added that mapping prior downcycles in Asian machine tools and Renishaw suggested the firm was capable of delivering "a stronger growth inflection" than current consensus assumed.
"With a near-term inflection in Asia machine tool growth forecast, we believe Renishaw can deliver a stronger than consensus earnings print and drive valuation below long-term average levels by CY21."
Citi initiated coverage of shares of luxury carmaker Aston Martin Lagonda with a ‘buy/high risk’ rating on Thursday and 600p price target.
It said the AML brand and strategy is sound but the business is now exposed, having been left undercapitalised since its IPO and is now in a position where it has "pressing short-term cash needs".
Nevertheless, with the shares trading at a sharp discount to peers, the bank said there is a potentially high return opportunity for investors even if this does come with a considerable degree of risk.
"In short we see three key hurdles the business needs to negotiate in 2020 (capital injection, successful DBX launch and resolution of Vantage problems) and with shares currently discounting a circa 15% cost of equity believe the risks associated with delivering this are sufficiently priced in," Citi said.
"Under our bull scenario in which discounted cash flow metrics converge with those of Ferrari we could see potential upside to 3,000p."