Broker tips: First Derivatives, Begbies Traynor, Experian
Analysts at Berenberg lowered their target price on consulting services firm First Derivatives from 2,750.0p to 2,200.0p on Thursday, stating the firm's underlying performance had become "worrying".
Berenberg said its main motivator to cut its target price on First Derivatives was the fact that the group missed its full-year 2020 sales and underlying earnings expectations.
The German bank highlighted that growth had slowed "materially" during the second half in its consulting and software services divisions but said more disappointing was the continued fall in underlying EBITDA in 2020.
"The weak underlying trends, coupled with any potential impact from the Covid-19 pandemic only affecting the business after year-end, mean FD's FY 2021 outlook is challenging," said Berenberg.
With the shares trading at 33 times its price-to-earnings ratio and a roughly 2% free cash flow yield for 2021, Berenberg said First Derivatives was also "expensive".
"We cut our FY 2021/22 EPS estimates by 25%/10% respectively and price target to 2,200p (from 2,750p)," concluded the analysts, who also reiterated their 'hold' rating on First Derivatives.
Canaccord Genuity has upped its price target on Begbies Traynor, arguing that a spike in insolvencies following the Covid-19 outbreak will boost earnings at the corporate restructuring specialist.
The bank, which has a ‘buy’ rating on the stock, has increased the target to 128.0p from 109.0p following a positive trading update.
Canaccord has upgraded its outlook for Begbies’ business recovery division and is now forecasting organic revenue growth of 8% and 10% in 2021 and 2022.
“Noting that the UK insolvency market grew by 7% year-on-year in 2019, and given the prospect of a severe recession in the UK despite government intervention, we believe our forecasts should be at least achieved,” Canaccord analyst Kit Stephenson said.
He continued: “The full-year trading update indicates results in line with our expectations, despite reduced activity in the property services division during the final quarter due to the lockdown. In the near term, we reflect our belief that property valuations and business sales agency activity could remain subdued as the locked is eased, which results in a 13% cut to 2021 earnings per share.
“However, upgrading our outlook for Begbies’ business recovery division results in a 27% increase to our 2022 EPS forecast.
“The withdrawal of government-led support means for businesses will inform the precise timing, which could occur earlier, but certainly by 2022 we expect to see meaningful growth in the UK insolvency market, which plays to Begbies’ core counter-cyclical business.”
RBC Capital Markets downgraded its stance on shares of credit-checking firm Experian to ‘sector perform’ from ‘outperform’ on Thursday, saying the valuation is largely up with events, although it continues to like the equity story.
The bank noted that the stock has performed well operationally and share price-wise. It has outperformed the FTSE 100 by 35% year-to-date and 43% on a 12-month view, reflecting the market move into large cap quality defensives, along with good operational delivery, although RBC said it has been surprised at the scale of the re-rating.
"Whilst Covid-19 will impact the business, Experian appears to be taking share and the investment in Consumer is paying off.
"However, we see the valuation as now more prohibitive for new money and we move to sector perform, although our target price nudges up to 2,700p." The target price was previously 2,500p.
Despite being positive on the overall equity story over the longer term, RBC said it can’t justify enough upside to put new money into the stock and would wait for a better entry point.