NEX Group hit by RBC Capital downgrade

NEX Group was under the cosh after RBC Capital Markets cut the stock to ‘underperform’ from ‘sector perform’.

The bank said it was reducing its earnings per share forecasts by 13%/8%/7% in FY18/FY19/FY20 and lowering its price target to 600p from 650p.

“While NEX has a number of positives, we believe the shares continue to trade above their fair value despite an increasingly challenging outlook,” it said.

Among the positives, it highlighted material earnings growth, positive gearing to increased volatility and higher rates, and event risk.

Nevertheless, it said the shares were trading above their value because NEX is a restructuring story that is running behind schedule. “We believe a second profit warning is possible (particularly given the NEX Optimisation CEO's recent departure) and a downgrade (or extension to FY21) of the FY20 financial ‘aspirations’ likely."

In addition, it said that while NEX is positively geared to volatility and rates, volumes are difficult to predict. RBC assumes ongoing top-line growth for NEX’s transaction-driven businesses, but said trading conditions are difficult to predict and outside of management’s control.

Finally, it said NEX is a potential takeover target and hopes for a takeover are sustaining the share price above its fair value. “Given the focus on actively managing the business, we believe a near-term deal is unlikely.”

At 1310 BST, the shares were down 3.3% to 634.50p.