Broker tips: Hunting, Windward, PPHE

Berenberg downgraded Hunting on Friday to ‘hold’ from ‘buy’ as it said the risk/reward is less attractive after a strong share price performance.

The bank, which kept its price target at 325p, said Hunting’s revenue has tracked the wider recovery that has occurred in the US rig count and its share price has had a strong run, up 63% since it upgraded the stock in July 2022.

"Moreover, the company posted strong FY22 results on 2 March; however, the US rig count has declined year-to-date and faces headwinds to further growth, including labour shortages, supply chain constraints, lower gas prices and continued capital discipline," Berenberg said.

"These factors have contributed to a reduction in our revenue estimates of 3% and 4% for 2023 and 2024 respectively."

It said that while the outlook remains strong, the risk/reward is now less attractive, with shares trading on FY23/FY24 EV/EBITDA of 7x/5.8x.

Analysts at Canaccord Genuity slapped artificial intelligence firm Windward with a 'buy' rating and 115.0p target price on Friday after having previously placed the stock under review.

Canaccord Genuity stated elevated churn and contract deferrals among emerging market government customers had led to "a reset in forecasts" but added that Windward's sales momentum and pipeline in commercial and US government continued to "look healthy".

The Canadian bank noted that at a high level, the maritime industry remained "a digital transformation laggard" and very fragmented with sub 250,000 commercial organisations.

"Of these only 130 are currently buying Windward's advanced AI-based industry-specific SaaS solution. The company is addressing this huge TAM by building out a broad suite of highly relevant risk management tools solving individual strategic pain points for customers," said the analysts.

"Our new estimates bake in an achievable and likely conservative 20% sales CAGR, with net cash troughing at $10.0m or roughly 20% of market cap next year before P&L breakeven in 2025. The environment for unprofitable growth stocks remains difficult, but the shares' 1.3x 2024E EV/Sales multiple in our view materially undervalues the business given top-quartile growth, a 99% recurring revenue share, the strong roster of blue chip customers and listed UK peers trading on 3x."

Jefferies upgraded PPHE Hotel Group to 'buy' from 'hold' on Friday and lifted its price target on the stock to 1,600.0p from 1,300.0p as it pointed to a valuation disconnect.

"We see a disconnect between PPHE's share price and fundamental performance," the bank said - noting that despite improved growth prospects, shares were down 6% over the past three months versus the wider sector up 15% to 23%.

"We see declining leverage and the new investment fund as key catalysts for the discount to NRV at -55% (versus Dalata -35%) to narrow," it said.

Jefferies said the share price decline was unjustified, noting that PPHE has seen continued demand strength in January and February, forward bookings growth for 2023, and pricing on the books up 5% versus the final quarter of last year. It also pointed out that guidance for sales and EBITDA growth is in line with peers.

In addition, the bank said it sees greater scope for recovery in 2023 versus peers given that PPHE's prime city centre locations are well-positioned to capture the recovery and that its partnership with Jin Jiang gives it unique access to the Chinese consumer, with its 150.0m loyalty member base.