Shore Capital downgrades JTC to ‘hold’

Shore Capital downgraded JTC on Tuesday to ‘hold’ from ‘buy’ as it lifted its fair value to 840p from 825p.

The broker said that after nudging forecasts higher, it sees only modest upside to its revised fair value following JTC’s valuation recovery.

"We like JTC for revenue visibility, earnings growth, its opportunity to compound, and its high rate of cash conversion, however, with insufficient upside to our fair value, we reduce our stance to hold," it said.

"Potential upside to our return on invested capital and fair value estimates could come from: (i) shareholder value additive M&A, (ii) cost efficiencies including the application of technology to streamline processes, (iii) cross-selling via the new Commercial Office, (iv) a pick-up in the formation of new funds."

ShoreCap said that even if new business activity levels have slowed due to the uncertain macro, demand for JTC’s services should remain relatively resilient as clients continue outsourcing to rationalise costs. It also noted that JTC continues to build market share.

"Organically, the focus here is on longevity of client relationships, which makes strategic sense even if it costs margin upside in the near term if price increases are moderated. Inorganically, after focusing on integration and deleveraging over the past year, activity should resume this year," Shore said.

JTC is a provider of fund administration services.