Broker tips: Quixant, CareTech Holdings, Nichols, Asos
Analysts at Canaccord Genuity raised their target price on gaming hardware manufacturer Quixant from 225.0p to 240.0p on Thursday after broad-based demand drove a full-year earnings beat for the firm.
Canaccord Genuity noted that Quixant had reported that both its gaming and Densitron businesses had performed strongly through 2021, with the group able to meet high levels of customer demand by utilising strategic inventory and pricing strategies to navigate significant supply chain challenges.
As a result, full-year revenues were expected to be $87.1m, representing a material beat of 9% to the analysts' $80.0m forecasts, while adjusted pre-tax profits were also projected to be ahead of consensus of $4.9m, which they see flowing down to an upgrade of 5% at the adjusted earnings per share level.
The Canadian bank, which reiterated its 'buy' rating on the stock, said the outlook for Quixant was also "encouraging", with the company reporting that it had entered 2022 with "a strong order book", which provides "good levels of visibility" across gaming and Densitron.
Analysts at Berenberg lowered their target price on care homes operator CareTech Holdings from 700.0p to 660.0p on Thursday, stating both top-line growth and margins appeared to be under pressure.
Berenberg stated that CareTech had reported "slightly weaker-than-expected" 2021 full-year results, due to challenges it currently faces in staffing, with underlying earnings falling 2.2% short of consensus.
The German bank, which stood by its 'buy' rating on the stock, said it expects that fee negotiations with local authorities will be supportive of further increases in staff costs, including the 6.6% increase in the National Living Wage in April 2022.
While margins of the care business will remain challenged in the short term, Berenberg said it still expects further top-line growth, aided by organic additions to the firm's property portfolio, adding to group capacity, as well as the acquisition of Rehavista in November, which it estimates will add roughly £14.0m to revenue.
HSBC downgraded Vimto maker Nichols on Thursday to 'hold' from 'buy' and cut the price target to 1,480.0p from 1,550.0p, stating that after a volatile year, the results of the firm's refocusing were paying off but inflation had moderated the upside.
"We feel pricing action to offset inflation is possible across all three businesses but it may require caution and may not be immediate," HSBC said. "Price increases at Vimto UK may be tricky and subject to positive competitive actions: here Nichols is a strong N#2 player in concentrates and does not have category pricing power, though other non-pricing strategy may be of value.
"In international markets, the company supplies concentrate and here taking pricing may be somewhat easier; however, these markets look very fragmented and with a lower income consumer base in Africa and the Middle East that is potentially more price-sensitive, price elasticity must be taken into account."
HSBC said it reckons that taking prices up in the Out of Home category was easier as the business deals with a captive audience that is relatively insensitive to prices. However, the bank added that as OOH supply contracts generally reprice once a year, it may take time to fully recovery inflation from pricing.
HSBC added Nichols was not currently in a position to recover from inflation too quickly and in 2022 will prioritise top-line growth to operating margins and on this basis, sees the shares lacking direction until visibility on a full recovery of margin improves.
Analysts at Liberum slashed their target price for shares of Asos from 3,560.0p to 2,300.0p on Thursday after the company posted weaker-than-expected sales for the first four months of its financial year.
The online fashion retailer announced a 2% rise in sales, or 5% at constant exchange rates, for the September to December period, as the latest wave of Covid-19 and supply chain disruptions dragged on sales in the European Union and US.
Despite the tough comparables with the year earlier period, when sales jumped by 23%, the firm had guided towards mid-single digit growth, despite gross margins shrinking by 400 basis points due to clearance activity, high freight costs and increasing use of air freight.
Liberum, which reiterated its 'hold' rating on the stock, also pointed out the "significant" cash burn by Asos over the last few years as it invested in technology and infrastructure, even though execution had historically been a source of disappointment.