Broker tips: Avast, Ashtead
Analysts at Berenberg lowered their target price on software firm Avast from 680.0p to 550.0p on Wednesday but said they still think the group's fundamentals "remain sound".
Berenberg believes that most investors would agree that Avast's current share price implies a broken deal with NortonLifeLock after the decision by the UK regulator to refer the takeover to a phase-two investigation.
The German bank said it finds this decision surprising and not necessarily forward-looking. However, it also agrees that it is now anyone's guess if the deal will be completed.
"Considering this, we update our numbers following the FY 2021 results and the recent Q1 2022 trading update," said the analysts. "Despite the lowered FY 2022 guidance, we think Avast's fundamentals remain sound with industry-leading EBITDA margins."
Berenberg said the group will probably have to invest more than it has before into sales, marketing, and R&D in order to counter aggressive competition. But even so, the analysts noted that if the Norton deal were to be pulled, after a short-term drop in the share price, they think it will find support at roughly 440.0p.
"Our one-year price target, however, is 550.0p (ie on the assumption that the deal does not happen), given the attractive underlying economics of the business and a return to mid-to high-single digit-growth from FY 2023 onwards," said Berenberg, which stood by its 'buy' rating on the stock.
RBC Capital Markets upgraded Ashtead on Wednesday to 'outperform' from 'sector perform', saying it sees the equipment rental company as a structural long-term beneficiary in the fragmented North American market, with optionality around international expansion.
"Management is best in class and we see the revenue mix as ever more resilient, bolstered by rapidly-growing, under-penetrated specialty solutions and the execution on of the vast IIJA (Infrastructure Investment and Jobs Act) stimulus in the US in coming years," it said.
RBC said that although equity market volatility looks set to remain elevated, now is a good time to start accumulating Ashtead shares, "perhaps recognising that our timing may be imperfect".
The bank also cut its price target on the stock to 4,625.0p from 4,950.0p.