Berenberg starts Ascential at 'buy'

The bank said it likes Ascential’s willingness to reshuffle its portfolio to continually maximise organic growth.

Berenberg pointed out that as of this year, the group is disposing of a third of its brands while integrating two high-growth acquisitions: MediaLink and One Click Retail (OCR).

This, coupled with a natural growth opportunity in the US and Asia-Pacific, where Ascential is currently underpenetrated versus peers, should help to drive a double-digit earnings per share compound annual growth rate over the next three years, it said.

"With one third of the company’s brands held for sale we believe that, upon their disposal, both growth and margins will improve. These disposals, coupled with a rapidly de-levering balance sheet, could give Ascential circa £200m of M&A firepower in the coming years."

Berenberg noted the company is holding the Heritage Brands as an ‘asset for sale’ on its balance sheet for £72m. On last year’s EBITDA, this would imply an EBITDA multiple of 6.2x.

"This is materially beneath what peers trade on, i.e. circa 11x EBITDA. Our cash flow estimates do not include the proceeds of these disposals but if we did, this could add around 10% upside to our base case price target."

At 0840 BST, the shares were up 2.6% to 339.40p.