Broker tips: Aggreko, IQE, BT Group
Analysts at Berenberg more than doubled their target price on Aggreko from 410.0p to 880.0p on Monday after a buy-out offer from a consortium made up of TDR Capital and I Squared was recommended by the group's board.
Berenberg said the 880.0p per share offer represented a 39% premium to Aggreko's closing price on 4 February and believes the valuation to be more "easily justified" by private markets and sees the upside risk from a viable higher counter-offer as being low.
"The offer is a significant premium to the pre-offer period share price," said Berenberg.
Given the risk and significant investment involved in Aggreko's strategy, the German bank thinks shares will likely revert back to between 600.0p and 650.0p in event of the bid not being accepted by shareholders or the offer being taken off the table.
"Unlocking the value of private equity would take longer as a public company given the constraints on leverage," said the analysts, who highlighted that this limits the company's flexibility to pivot towards attractive end-markets and deserves a discount.
Canaccord Genuity increased its price target and forecasts for IQE to reflect recent trading that was stronger than expected.
The semiconductor wafer and materials company said in January that revenue for 2020 would be at a record level and that it started 2021 with good momentum.
Canaccord said an expected more than doubling of 5G smartphone shipments in 2021 and modest upstream inventory levels should support growth against strong figures for 2020. Content growth at Apple, which IQE supplies, should benefit the photonics business, the broker said.
Analyst Kai Korschelt upped his price target for for the AIM-traded shares to 80p from 73.5p and stuck with his 'speculative buy' rating. IQE shares rose 4.5% to 71.6p at 15:54 GMT.
Despite healthy demand the Cardiff-based group's revenue growth will slow to about 7% in 2021 from 25% in 2020 because of strong 2019 numbers and currency movements, Korschelt said. He increased his 2021 pretax profit forecast to £9.5m from £5.6m and his 2022 forecast to £13.6m from £12.3m.
Numis has cut its recommendation on BT Group to ‘sell’, arguing that the telecoms giant is unlikely to benefit from some of the tax benefits announced by the chancellor in last week's Budget.
Numis argued: "BT does not know how much of its pre-planned capex qualifies for extra tax deductions in the two years to March 2023 and, in any case, the company thinks 'this would be offset in later years by the subsequent increase in the corporate tax rate to 25% from April 2023'."
The bank continued: "Britain's corporation tax will climb from 19% to 25% from April 2023. In the two years to March 2023, consensus expects BT capex and tax outflows to total around £9.0bn and around £0.9bn respectively. Its equity value climbed £0.9bn (7%) on 3 March. Thus, BT will have to tell investors if the net present value of extra tax saved due to the new, temporary 'super deductions' will be materially different.
"Note that the chancellor's aim is to accelerate investment, whereas much of BT's capex in the next two years has long been pre-planned."
Numis' forecasts for BT, and its 110.0p price target, remain unchanged. But the bank noted: "The latter is -22% versus BT's last closing share price. Thus our recommendation reverts to 'sell'.