Berenberg initiates coverage on Lords Group at 'buy'

Analysts at Berenberg initiated coverage on construction goods distributor Lords Group with a 'buy' rating on Thursday, stating it was a "fast-growing UK builders' merchant".

Berenberg highlighted that Lords Group was currently pursuing a growth strategy, with management targeting £500.0m of revenue by 2024, up from £363.0m in 2021, after already growing revenues at a 67% compound annual growth rate between 2018 and 2021.

While the German bank said Lords, which it issued a 120.0p target price, offered exposure to the "structurally attractive" renovation, maintenance, and improvement market, it also noted the group has "numerous company-specific levers" to pull in order to grow revenues and optimise margins.

"If it delivers its margin target, we think there is material upside to earnings forecasts. We initiate with a 'buy' rating and a price target of 120.0p, implying upside of 37% to the current share price," said Berenberg.

"Shares currently trade on 2023E 8x EV/EBIT, compared to peers at 9.5x. We believe that, as the group establishes its track record in public markets and continues to take market share while optimising margins, it can close this valuation gap versus peers."

Reporting by Iain Gilbert at Sharecast.com