Broker tips: Keywords Studios, Morgan Sindall, Tesco
Analysts at Berenberg raised their target price on IT services management group Keywords Studios on Wednesday from 1,700.0p to 2,250.0p after the group's first-half numbers came in ahead of expectations amid an improving outlook.
Berenberg said Keywords Studios had delivered a "very strong" first-half trading update a day earlier, with growth and margins ahead of forecasts and a number of growth tailwinds.
With positive margin trends and bullish commentary on near-term mergers and acquisitions, the German bank said it remained positive on the stock despite a recent strong run in shares.
The analysts increased their 2020-22 pre-tax profits estimates increase by 17%, 4% and 5.3%, respectively mainly due to an upward revision of its bull-case organic growth and M&A scenario.
"KWS explicitly stated it expects to complete acquisitions over the coming months," said Berenberg. "If KWS deploys its £100m net cash position as at June on M&A over the next year, which is in line with historical multiples, it would increase our pro-forma FY 2021 PBT estimates by circa 20%."
Berenberg added that for 2021, Keywords trades on 20 times enterprise value to earnings before interest, tax, depreciation and amortisation, 15% below its three-year average, and 33 times its price-to-earnings ratio - in line with its three-year average.
Analysts at Liberum upgraded construction and regeneration firm Morgan Sindall from 'hold' to 'buy' on Wednesday following some detailed guidance from the group.
Liberum said MS' first-half results were "weak as expected" with a 57% decline in fully-diluted earnings per share and weakness across the board.
However, with management giving detailed guidance on the group's outlook, the analysts increase their 2020 EPS estimates by 29% despite an impending £9.3m furlough repayment. They did leave it unchanged in 2021 though given "macro uncertainty and high private-sector exposure".
Liberum also increased its 2020 average daily net cash estimate significantly from £23m to £110m and upgraded its target price on Morgan Sindall from 1,225p to 1,300p.
"Total liquidity is more than ample and, although Morgan Sindall is eligible for the CCFF, it has not needed to use the facility," said the analysts.
Analysts at ShoreCap upgraded their recommendation for shares of Tesco from 'hold' to 'buy' following what they termed a "robust" first-quarter trading update from the grocer.
Feeding that momentum was the shift from out-of-home to in-home calorie consumption, although the update did also confirm a "significant" step-up in costs linked to the Covid-19 pandemic which would be weighted towards the first half.
Nevertheless, greater clarity from management on its expectations for profits in the full 2021 financial year allowed ShoreCap to reintroduce forecasts for Tesco.
Management guided towards a flat year in Retail and book losses in the banking side of the business of £175-200m.
On the back of that, the analysts pencilled-in estimates for an 11% drop in earnings per share for the current year, but a subsequent rebound during the next followed by further growth thereafter.
They also spied a return to dividend payments and share buybacks and said the shares' valuation was "undemanding" with an estimated price-to-earnings multiple of 10.5 times for 2022 and trading on an enterprise value-to-earnings before interest, taxes, depreciation and amortisation multiple of 6.5.