UBS hikes target for Morgan Advanced Materials but stays at neutral

Analysts at UBS lifted their target price on shares of Morgan Advanced Materials from 245p to 285p, but stuck to their 'neutral' recommendation on what they described as a serially underperforming engineer.

To prove their point, they highlighted the company´s own guidance for R&D investment to increase by just 1% of sales over the next three to five years.

That, they said, suggested little change in the underlying performance of the bussiness over the medium-term.

Their forecasts called for organic sales to expand at a compound annual growth rate of 2.4% with margins at roughly 12% over 2016 to 2020, in comparison to the equivalent average for its sector peers of 3.5% and 15%, respectively.

Hence, although shares in the UK ceramic and carbon materials engineer were changing hands at about a 25% discount to the sector´s average EV/EBITDA multiple for 2017, in the case of Morgan that was justified, the broker said.

Nonetheless, the Swiss broker did revise its estimates for the company´s earnings per share in 2016 and 2017 higher by 1% and 6%, respectively, to account for recent foreign-exchange related tailwinds.

"We estimate that a 10% move in the $/£ rate equates to a 3% EBITA impact and a 10% move in the €/£ equates to a 4% impact, all else remaining equal."