Broker tips: NMC Health, Vodafone, 4imprint
Berenberg slashed its target price for shares of NMC Health after rebasing its model and transferring coverage to analyst Michael Ruzic-Gaithier, but continued to see significant upside.
The German broker slashed its target price from 4700p to 3600p but kept its recommendation at 'buy', even without accounting for the possibility of inorganic growth or the potential from its joint venture with the General Organization for Social Insurance (GOSI) - the largest pension fund in Saudi.
The stock's valuation, with the shares trading on about 16.0 times' estimated earnings for 2020, was "unwarranted", they said.
Combined, the healthcare supplier's competitive positioning and multi-year growth which lay ahead should result in a compound annual growth rate of about 30%, which in their opinion justified a P/E multiple closer to 21 times.
NMC's Royal Hospital in the UAE alone was capable of pushing the company's operating profits 30% higher by 2023 once mature, the broker said.
And now NMC was intent on pushing into the Saudi market and Berenberg judged it was "well-positioned" to do so.
"We also note there is material upside to our forecasts, given that we do not model for inorganic growth and have opted not to speculate on the financial effects of the Saudi JV."
Analysts at Citi reiterated their 'buy' recommendation for shares of Vodafone on Tuesday, telling clients that a cut to the telecoms outfit's dividend payout was not their base case.
Ahead of the company's full-year numbers due out on 14 May, the broker said it could not rule ou a cut.
Indeed, the market was already reflecting that possibility through the greater than 9% dividend yield that the shares were sporting, amid the ongoing German spectrum auction, but "that is not our base case".
However, even when adjusting for financing adjustments and for normalised spectrum outflows - of say €1bn per year - Vodafone's near €4.0bn payout was almost covered, they said.
Adjusting for financing adjustments, Citi pegged Vodafone's free cash flow at roughly €4.8bn.
Within the same reseach note, the broker also noted that it was its last set of full-year figures which had acted as the catalyst for the "consistent derating" in the share prince seen since then.
Citi also kept intact its 180.0p target price for the shares.
Peel Hunt has reduced its recommendation on 4imprint to ‘add’ following a strong run in shares of the corporate merchandise company.
4imprint's joint house broker cut its recommendation on the shares from ‘buy’ while raising its price target to £26.50 from £24. Peel Hunt analyst Malcolm Morgan said the company remained a core holding for its growth rate rather than further rating improvement.
The company produces pens, bags, clothing and other products bearing the logos of its corporate customers. It reported orders up 14% and revenue up 16% in the first four months of 2019 and said it was confident about meeting market forecasts for financial results.
Morgan wrote in a note to clients: “Trading year to date has been very good […] The shares have rallied hard this year, reflecting the reduced investor concerns of US growth and increasing confidence in the success of the brand-building campaign.”
He said 4imprint shares were trading at 23.6 times 2019 earnings – which was well above the average of 20 times forward earnings seen over the past five years.