Berenberg raises target price on TT Electronics

Berenberg acknowledged that it had "long told the story" of TT Electronics' improving growth and margin profile, but noted that the third facet of its investment case was now emerging - cash.

"With an inflection in cash generation next year, we forecast a 5.2% free cash flow yield, well ahead of TT's closest peers like discoverIE," said Berenberg, which also highlighted that upside risks were attached assuming a successful buyout of the firm's pension scheme.

Considering that TT "should sustainably deliver 3-5% organic growth and 10%-plus margins on a two- to three-year view", the German bank thinks the stock's valuation remained "compelling" and said it considers the group's Virolens Covid-19 testing device "a free option at these levels".

"On an organic basis, our group expectations are largely unchanged, but updated FX and higher tax rate assumptions drive a 5-7% downgrade to our 2021 and 2022 EPS. Our FY 2023 EPS is unchanged," said Berenberg, which also reiterated its 'buy' rating on the stock.