Broker tips: Judges Scientific, Next, Associated British Foods

Berenberg initiated coverage of Judges Scientific on Monday with a 'buy' rating and 10,400.0p price target, stating it was one of the highest quality companies in the UK mid-cap market, evidenced by its "stellar" track record.

The German bank noted that between FY15 and FY22, revenue grew at an 11% compound annual growth rate and margins progressively improved by more than 1,000 basis points to 27% from 16%. In addition, over £150.0m has been deployed across 22 acquisitions since inception.

"We think Judges offers strong growth fundamentals, high margins, and a significant opportunity to consolidate a fragmented market," Berenberg said.

It pointed out that Judges sells instruments into end-markets such as geotechnical engineering, research and advanced materials, which it said benefit from attractive structural drivers - for example, increasing enrolment in higher education and demand for superior materials performance.

"We estimate that these end-markets are growing at 3-7% per annum and that Judges will grow organically by at least 5% pa to FY25, which we view as impressive relative to our UK scientific instruments peer group.

"We think Judges' historical outperformance versus this group highlights management's strong track record of identifying quality companies under its buy-and-build strategy."

JPMorgan Cazenove placed shares of Next and Primark owner Associated British Foods on 'negative catalyst watch' on Monday as it took a look at the European general retail sector.

"It is well understood that unseasonably warm weather through September and October so far is unhelpful for clothing retailers as they launch Autumn/ Winter product," the bank said. "Recall that the AW selling period is relatively short, therefore often bringing pressure to start discounting early if there is a weak start to the season (which could be exacerbated this year amid still elevated inventory levels for some, and particularly the online players)."

JPM pointed to the last time the weather was this unfavourable, which was the fourth quarter of 2018.

"In a similar situation to that which we think could develop this year, the sector underperformance in late 2018 was exacerbated by concerns that weather-driven weakness could have been masking an underlying deterioration in consumer confidence," it said. "We expect all of our clothing coverage to be impacted by the warm temperatures, but given the relative share price performance, we place Next and ABF (Primark) on Negative Catalyst Watch ahead of their updates on 1 Nov and 7 Nov, respectively."

More broadly, JPM said it remains concerned that the benefits of-pent up demand in the sector could start to wane, and that clothing price deflation could also weigh on top-line forecasts into 2024.