Broker tips: Michelmersch Brick Holdings, StanChart, Dechra Pharmaceuticals
Analysts at Canaccord Genuity hiked their target price for shares of Michelmersh Brick Holdings from 146.0p to 162.0p, pointing out to clients the company's good execution amid challenging circumstances and "strong" cash conversion.
The clay brick and tile maker's latest interims and performance over the half were both "impressive" and its low levels of finished stock pointed to underlying full-year earnings before interest, taxes, depreciation and amortisation coming in marginally ahead of 2019's "strong" outcome, they said.
Michelmersch was also seen ending the year with over £5m of cash on hand.
The analysts also bumped up their estimates for the company, despite cautious guidance from Michelmersch as regards the drivers for labour and inflation.
Nevertheless, Mickelmersch had entered the second half with a strong and balanced order book and was continuing to see positive order intake momentum from customers and in their construction-related end markets more generally.
"With business delivery very much back on track, the Group has also reinstated the interim dividend at 1.15p per share. The Group looks well placed to deliver a strong profit outcome for the full year and be well positioned to use its strong balance sheet to deliver attractive shareholder value over the medium term," the broker added.
Canaccord's recommendation on the shares was unchanged at 'buy'.
Analysts at Berenberg reiterated their 'buy' stance on shares of StanChart, telling clients that low global interests were masking volume growth and hence the shares had become undervalued.
The low interest rate environment had contributed to a 6% year-on-year decline in StanChart's revenues over the front half of 2021, despite positive volume growth of about 5.0%.
In parallel, StanChart's costs had been broadly flat and Berenberg expected the lender's continued investments would support low cost inflation.
Indeed, "with these affects having now fed through, Standard Chartered is experiencing net interest margin stability that we expect to continue – with scope for expansion as liquidity is optimised (particularly if yields rise)," the analysts added.
The analysts estimated that the lender could now grow its revenues by 9.0% over the back half of 2021 and by 5.0-6.0% beyond that.
Furthermore, with a common equity tier one ratio of 14.1% - above management's 13.0-14.0% target range - and a capital-light business model, Berenberg said StanChart could continue to support "attractive" capital returns of approximately 8.0% annually.
Berenberg also kept its target price for StanChart's shares at 630.0p, which valued the lender at 0.7 times its tangible book value, against the 0.5 times TBV they were changing hands on now.
Analysts at Liberum hiked their target price for shares of Dechra Pharmaceuticals but kept their recommendation at 'sell', telling clients that they struggled to justify such a lofty valuation.
In particular, the analysts questioned the sustainability of Covid-driven demand, which they said had lifted the entire companion animal market.
The day before, the veterinary pharmaceuticals and products specialist had turned in a solid set of full-year results, bolstered by a 26% surge in sales of Companion Animal Products.
And the company had seen a strong start to the 2022 fiscal year.
Hence their decision to raise their estimates and their target price with the latter rising from 3,110.0p to 3,960.0p.
Despite that "exceptional performance", the analysts said they could not justify a forward price-to-earnings multiple of 40.
They also noted that Dechra had flagged a softening in vet visits in the States.
Furthermore, market leader Zoetis was expecting trends to moderate, muddying the waters a bit when it came to the sustainability of the Covid-related boost to CAP.
Indeed, their new target remained some 20% below the actual share price despite factoring in sector-beating growth out to 2030 and moderating afterwards.