Broker tips: ABF, Sophos Group, Tullow Oil
(ShareCast News) - Analysts at Goldman Sachs raised their target price on shares of Associated British Foods, pointing to the company's differentiated positioning and potential upside from its Click & Collect model to back up their case.
The investment bank also emphasised the fact that, unlike peers, higher input costs were already baked into its estimates for fiscal year 2017 gross margins.
Together with a roughly 10% rate of growth in space and a return to expansion for like-for-like sales to 1%, that would drive increases of about 13% in operating profits for each year between 2017 and 2021.
On the back of the above, Goldman marked its target on the shares up from 3,000p to 3,200p, while reiterating a 'buy' recommendation.
Ahead of the company's next trading update, scheduled for 6 July, Goldman cited two main risks investors should watch out for.
The first of those was strength in the pound, because 57% of the firm's sales originate form beyond the UK, followed by the risk of any further deterioration in the European clothing market which could drive a lower EBIT performance at ist Primark unit.
Analysts at Deutsche Bank hiked their target price on shares of Sophos Group on the heels of management's upbeat medium-term guidance and given the company's "highly predictable" subscription-based model.
In particular, the analysts highlighted how the security software and hardware outfit's business model was based on compounding growth from existing customers, given its subscription-based model.
Management had guided towards "solid" growth in billings out to fiscal year 2020 which it saw coming in at $1bn, for a compound annual growth rate of 17%, with free cash flow expected to clock in with a CAGR of 20% over that same time span.
Operating margins were also seen improving by between 100 to 150 basis points per year.
"Given the company's highly predictable subscription-based business model, we think these targets are well underpinned," analysts Alex Tout and Steve Goulden said in a research note sent to clients.
Canaccord Genuity trimmed its target on shares of Tullow Oil after revising their short-term 'price deck' for the price of Brent lower.
Analyst Charlie Sharp said the broker was now projecting Brent to trade at $55, $57.5 $62.5 in 2017, 2018 and from 2019 onwards, respectively.
That was down from forecasts for $57.5 and $62.5, respectively, beforehand.
Those revisions offset news of the outfit's drilling success in Kenya with the Emekuya-1 well, which allowed it to extend Greater Etom area of the south Lokichar basin.
"The Etom area is proving to be a good picking ground for additional resources in Tullow's Kenyan acreage (with a working interest of 50%), and with an extended drilling campaign and Early Oil Production (trucking of stored oil first, leading to trucking of 2,000 bopd from already drilled wells in Q4 '17), we expect further resource uplift and more 'hard' data to assist in the wider area development planning," Sharp said.
Estimating the appropriate value of that well was complex but the analyst raised his upside potential resource risking from 30% to 40%, boosting his estimate of the total gross risked resources available from that project to 1.5bn barrels, versus 930m previously.
Despite that, and his expectation for rising crude oil prices, Tullow's net debt would still be at 3.5 times EBITDA at the end of fiscal year 2017.