Canaccord leaves ITE Group at 'hold' after trading update

The company on Monday reported a 12% increase in first half revenue to £63m, lifted by strong performances from acquisitions including Breakbulk and Africa Oil Week.

On a like-for-like basis, revenues fell 4% but represented a material improvement from the 13% decline in its first quarter.

ITE said the results were in line with management expectations.

The group warned that its like-for-like trading volumes for full year 2016 are around 9% less than this time last year, and like-for-like revenues are also 9% behind last year's comparative. Both are in line with expectations, ITE said.

Canaccord said the full year declines implied a further deterioration into the third quarter at an estimated like-for-like decline of 15%, reflecting the impact of the weak macro-economic backdrop particularly in Russia, impacting key events such as Mosbuild.

However, the broker said it should be offset a modest improvement in the rouble against the pound and the rising oil price.

“Overall, we see little reason to change our full year forecasts, with pre-tax profit (norm) of £37.0m and fully diluted earnings per share of 11.1p, both broadly in line with consensus,” said Canaccord analyst Simon Davies.

He added that given recent weak performance with shares down 8% in the year to date, Canaccord expected to see a modest short-term rally.

“ITE is trading on a calendarised 2016 price to earnings ratio of 12.9x and a 10.0x enterprise value / earnings before interest, tax, depreciation, and amortisation at our target price of 145p,” Davies said.

“This represents a modest discount to its peer group, merited by its high exposure to Russia/Commonwealth of Independent States. And with £70m of net debt, we see limited scope for additional M&A to drive upgrades."

However, he did note that the shares do offer an "attractive" 5.1% dividend yield.