Broker tips: Schroders, IQE, Volution

Credit Suisse downgraded Schroders to 'neutral' from 'outperform' on Friday and slashed its price target on the stock to 470.0p from 510.0p, citing flow headwinds and cost inflation.

CS said the downgrade reflected a 3%-9% reduction in its 2023-25 operating earnings per share forecasts but stated it continued to like Schroders' longer-term strategy and its diversified business model.

"However, we see headwinds for 2023: we forecast +1% growth in profit, and technical support factors from increased index weighting are now past," said the analysts, who forecast only 4% revenue growth in 2023 despite the tailwind effect of private asset acquisitions in 2022.

"This reflects: i) caution on achievable levels of fundraising for Schroders Capital this year; ii) strong bias of fund flows in Q1 / H1 to low-margin Solutions; iii) risk that modest mutual fund flow momentum will be derailed by poor relative investment performance; and iv) CSe caution on JV and Institution flow momentum," it said.

It also pointed to near-term cost inflation, forecasting 6% cost growth in 2023.

Numis has cut its price target on semiconductor wafers supplier IQE after the tech firm issued its second profit warning this year.

The broker slashed its target share price for IQE to 50.0p, down from 80p, but retained its 'buy' rating on the AIM-listed firm after IQE said a day earlier that a drop in customer orders was expected to hit revenues, just weeks after it first warned of softer demand.

Numis said: "IQE's second warning since January snapped investor attention back to the here and now, and jarred their confidence in its strategic value.

"IQE's near-term prospects are being hit by an industry-wide rather than a company-specific issue: value chains have not corrected over-stocking fast enough."

Numis also noted that although all big structural changes underpinning IQE's strategic value were intact, current visibility of these has been obscured by the effects of the current weak macro backdrop.

Analysts at Jefferies raised their target price on ventilation products supplier Volution Group from 470.0p to 490.0p on Friday, stating activity was continuing to flow.

Jefferies said the acceleration in organic revenue over December and January was a "particularly pleasing element" of Volution's interim results, as was the strength in UK repair, maintenance improvement market - an area where there was "significant" investor apprehension.

As a result, the analysts raised FY23/FY24/FY25 adjusted underlying earnings estimates by 7%/4%/4%, predominantly on higher revenues and kept its 'buy' recommendation.

Jefferies also said it was now looking for a return of mergers and acquisitions to provide a further catalyst for Volution's share price.

"On our new estimates, Volution trades on calendarised FY24F EV/ EBITA and PER multiples of 10.7x and 14.4x. These are undemanding figures in our view, equating to the average multiples seen since IPO. It is worth noting, that since mid-December, Volution has de-rated against a basket of European peers, with the FY2 EV/EBIT discount moving from 19% to 29%," said Jefferies.