Canaccord upgrades NCC Group to 'buy'

Analysts at Canaccord Genuity upgraded software and services firm NCC Group from 'hold' to 'buy' and raised their target price on the stock from 265.0p to 318.0p on Friday, citing its "strategic acquisition" of IPM.

Canaccord Genuity stated the addition of IPM, which works in escrow services and holds source code for safekeeping for its clients should something happen to the originator of the code, had set NCC up to be the number one in escrow services in the US and UK.

"We view the Dec 20 acquisition exit multiples of 6.7x EV/sales and 10x EV/EBITDA as good value for a highly profitable, cash-generative and extremely complementary business," said the analysts.

Canaccord stated that given the accretive nature of the purchase, it had upgraded its adjusted earnings per share estimates for both 2022 and 2023 by around 13-15% and noted that importantly, NCC also expects full-year 2021 adjusted earnings per share to exceed market consensus of £33.0m.

"Following the upgrades to our forecasts and the acquisition of a highly cash-generative business at an attractive valuation, we increase our target price by circa 20% to 318.0p and move our recommendation to 'buy' from 'hold'," concluded the analysts.