Broker tips: AB Dynamics, Bodycote, Hunting

Analysts at Berenberg hiked their target price on simulation and testing outfit AB Dynamics from 1,530.0p to 1,800.0p on Friday after the group's full-year results pointed to strong organic revenue and profit growth.

Berenberg said AB Dynamics' solid full-year results were supported by recent investments in its capabilities and a recovery in customer activity since the Covid-19 pandemic.

The German bank, which reiterated its 'buy' rating on the stock, also stated that while it continues to believe in AB's long-term growth story, it also noted that management had signalled ongoing investment into new product launches, as well as its ABD Solutions and AB Simulation divisions.

"Despite our investment case remaining unchanged, we factor in slower growth in driving robots, higher investment, and an increasing tax rate along with the UK corporation tax rate, which reduces our FY 2024/25E EPS estimates by 7.5%/9.7% respectively," said the analysts.

However, while Berenberg highlighted that it did not model any benefit from AB's investments, if these do bear fruit, it reckons there could be "material upside" to its base-case estimates for outer years.

Numis downgraded Bodycote to 'hold' from 'buy' on Friday and slashed its price target on the stock to 610.0p from 800.0p as it said weaker growth prospects were tempering the margin outlook.

"As global industrial production expectations for 2023 are revised downwards, we have tempered our growth expectations for Automotive and General Industrial but hope that the Civil Aerospace recovery momentum will provide some resilience for the group volumes next year," Numis said.

The broker is now assuming a 5% impact from higher prices/surcharges in 2023, but has cut its volume growth by 290 basis points to 3.9%. To be prudent, it also tempered its EBITA drop through assumption from 50% to 40% and assumed some modest under-recovery on cost inflation.

As a result, Numis has reduced its FY2023 EBITA and earnings per share forecasts by 14% to £114.5m and 43.8p, respectively, bringing it down from the top of the range to modestly below consensus. It also said the lower growth trajectory in 2024 and rebased 2023 estimates result in a 17% cut in FY2024 EPS to 47.9p.

The price target has been reduced to reflect the lower growth trajectory and sector de-rating. Numis said it was mindful that the sector has bounced since the end of September and sees more downside risk in the near term for the more cyclical exposed names.

Analysts at Canaccord Genuity raised their target price on energy services company Hunting from 350.0p to 375.0p on Friday following "another strong update" from the group.

Hunting affirmed its existing guidance of above $50.0m in underlying earnings and also raised guidance for 2023 EBITDA to $85.0m-90.0m, up from $80.0m, reflecting a number of factors - including a "significant" additional project award, and hence greater backlog, increasing confidence in pricing, and indications from capital markets that additional funding will be available for oil and gas companies.

In fact, Canaccord said the only challenge in the numbers was the comments on cash, where the group has continued to see substantial working capital needs on projects, including on the major award, meaning that year-end net debt ended up "considerably higher" than it had assumed.

"We are increasing our EBITDA for 2023E to $90.0m (was $80.m) and making considerably more bullish forecasts for 2024E and beyond," said the Canadian bank, which also reiterated its 'buy' rating on the stock.

"We believe we are still being relatively conservative on Hunting's earnings: as recently as 2018-19, the group earned EBITDA of circa $140.0m, and despite inflation, expansion into additional areas and acquisition, we still have the group below this in 2024E. We continue to see further scope for upgrades as investments at Hunting start to pay off."