Canaccord Genuity lowers target price on Nexteq

Canaccord said revenue for H124 was expected to be $48.2m, down 15% year-on-year, reflecting soft demand across both its Quixant and Densitron offerings as a result of persistent destocking, in line with wider industry trends.

The Canadian bank also said the impact has been amplified by some larger customers deciding to delay planned product launches and instead sweat assets for longer given a challenging macro backdrop.

"We have updated our model to reflect the new guidance. This sees our FY24E adjusted pre-tax profit reduce by 36% to $9.6m. We now see net cash 7% better at $38.0m. For FY25, the timing of planned customer spending remains uncertain at present, but we expect strong margins and a continued focus on cost management to at least maintain profit levels. We reduce FY25E adjusted PBT by 42% to $9.7m as a result," said Canaccord, which has a 'buy' rating on the stock.

"On our revised estimates, Nexteq trades on a P/E of 13.9x for 2024E falling to 13.7x for 2025E. P/E ex cash is 8.6x/8.0x respectively with net cash representing ~38% of current market capitalisation. That looks too cheap for us given the strength of gross margins and underlying cash generation, while absolute profit levels are likely to rebuild quickly, in our view, as cyclical destocking trends ease."

Reporting by Iain Gilbert at Sharecast.com