Broker tips: Intertek, BAE Systems
Exane BNP Paribas upgraded Intertek to 'outperform' from 'underperform' on Wednesday, saying it sees 20% upside from a re-rating as the market prices in stronger mid-term earnings per share growth.
Exane said that after three years of multiples and earnings expectations both grinding lower, it feels like many investors have given up on Intertek.
"This makes it interesting," said Exane. "In 2024 we expect strong margin expansion, while regulatory and fiscal tailwinds should support strong volume growth.
"A material improvement in margins combined with organic growth above the pre-Covid trend, should be sufficient to stem the de-rating in place since late 2020."
Exane said it expects a combination of exposure to US industrial investment and electrification, a recovery in consumer products and incremental growth in sustainability assurance to drive higher organic sales growth over the next three to five years.
Analysts at Berenberg raised their target price on aerospace and defence firm BAE Systems from 1,170.0p to 1,220.0p on Wednesday, stating the group was primed for "another good year".
Berenberg thinks BAE Systems has been well placed to deliver a 10% earnings per share compound annual growth rate over the mid-term, with the building blocks being a combination of mid-to-high single-digit organic revenue growth, steady margin expansion and low single-digit accretion from the ongoing share buyback.
"As we look towards 2024, recent progress towards enacting the FY 2024 US defence budget is positive, reducing the potential for a more protracted budget impasse which was threatening to cause growing disruption to BAE's US business," said BAE, which noted that BAE's US unit makes up roughly 45% of revenues.
The German bank highlighted that the stock's next catalyst was the closing of BAE's $5.6bn Ball Aerospace acquisition, which it expects to occur at the beginning of the second half of 2024, although it also thinks a shorter timeline could be possible.
"We trim our estimates for 2023-25 reflecting 1) a minor FX headwind from the recent strengthening of GBP/USD, lowered revenue assumptions in cyber and intelligence reflecting some disruption from the US continuing resolution, and a small margin headwind from the anticipated high maritime growth. We also factor in circa £40.0m of integration costs into our 2024 EBIT adjusted for the pending Ball Aerospace acquisition," added Berenberg, which also reiterated its 'buy' rating on the stock.