Berenberg cuts target price on Marshalls

Berenberg said Marshalls' profit warning last week was "disappointing", in its view, damaging the group's reputation within the sector as a "more resilient" play.

With leverage at the highest in its coverage, its debt floating and exposed to rising rates, and further downgrades likely from a slowdown in the new build residential market, Berenberg said it was struggling to "turn more optimistic" on the stock.

Although the group cut its expectations for the 2023 trading year to broadly in line with its prior forecasts, Berenberg has now cut its assumptions again, leaving it 10% below new guidance.

"This is driven by a cautious view on private RMI, which the group is already seeing, and the downgrades that we still expect to come through from the new-build residential market," said Berenberg, which reiterated its 'hold' rating on the stock.

"We do not believe these risks are reflected in guidance with the group generating c40% of its revenue from this end market. Only the brick manufacturers have higher exposure to new-build residential activity in our UK products coverage."

Berenberg added that following the group's profit warning, it now expects leverage to rise to 1.6x EBITDA at year-end and de-lever to just 1.5x at year-end 2023.

"This leaves Marshalls as the most levered company in our UK building product coverage, limiting scope for further material M&A and/or cash returns over the next 12 months," concluded Berenberg.

Reporting by Iain Gilbert at Sharecast.com