Numis and RBC sound a positive note on TT Electronics after latest update

Analysts at RBC Capital revised their target price for shares of TT Electronics lower on the back of the electronic component manufacturer's latest update.

In particular, they highlighted sales volumes growth of approximately 20% over the preceding four months and the fact that orders were running ahead of sales.

"A [price-to-earnings multiple] of 9x22E is priced for a significant cyclical downturn in our view and this continues to look very harsh vs business momentum," they said.

They also believed that cyclical risk was limited by its order book cover of around two thirds for 2023 and the fact that the company's end market mix included Healthcare and Aerospace and Defence at nearly 50% of sales.

The absence of operating leverage to its accelerated growth on the other hand was "slightly disappointing".

Nonetheless, earnings before interest, taxes and amortisation were still growing at more than 40% in comparison to the first six months of the year and the comparable year earlier period, they said in a research note sent to clients.

The analysts lowered their target price from 275.0p to 250.0p but kept their recommendation an 'outperform'.

Analysts at Numis however kept their 280.0p target price and 'buy' recommendation unchanged, focusing instead on the outfit's UK defined benefit pension scheme buy-in.

Assuming a weighted average cost of capital of 10% meant that the boost to cash flows from the move, of about £6m per year over the next three years, was worth £16m (9p per share) on a discounted cash flow basis, or approximately £40m when looking at the next 10 years (22p per share).

"In terms of company valuation, adjusting of 2023 assumptions for this would see 23E FCFe yield rise from 8.8% to 11.1%."