Berenberg raises target price on Polypipe

Berenberg noted that over the past two weeks, Polypipe has announced two acquisitions that both offered "strong" strategic fits, "high" growth potential and improved the group's "compelling" mid-term structural growth story.

To reflect the ADEY and Nu-Heat acquisitions, as well as the company's recent placing, the analysts reassessed their target price, with the group now trading at a 22x price-earnings ratio.

However, the German bank added that it remains "cautious" about whether shares can outperform the sector and highlighted better risk/reward scenarios elsewhere, leading it to reiterate its 'hold' rating on the stock.

"We integrate both acquisitions into our forecasts, which drive the c25% upgrades to our EBIT forecasts in FY 2021- 22E. We also include the c£96.0m of gross proceeds from the placing, which adds 18.7m shares (c8% of issued share capital). This dilution, combined with higher interest costs – as the group draws down £120.0m on its RCF – mean that the increase to our EPS forecasts is 13-15% over FY 2021-22," said Berenberg, which added that it also expects leverage to rise to 1.4x EBITDA in 2021, in line with management's guidance of pro-forma leverage being below 1.5x.