Liberum hikes target price on DX

Liberum said since DX's current management team arrived on the scene back in October 2017, the group had been refinanced and rescued as its financial performance recovered "to the brink of breakeven".

While Liberum said it was still examining the options for rebuilding profitability and pursuing growth, it said DX had weathered the Covid-19 crisis so far, but highlighted that it felt the group's valuation did not reflect the structural progress to date or the potential for further improvement.

The broker, which also reiterated its 'buy' rating on the group, believes underlying earnings margins could reach "high single-digit levels" on a three-year view, and possibly double-digit levels long term.

"We believe the recovery has been driven by revenue growth, rather than cost-cutting, suggesting the improvements to date are both sustainable and repeatable," said the analysts.

Liberum added that DX's forecast improvement in profitability was expected to be accompanied by a similar improvement and inflexion in free cash flow.

"In our view, this drives an attractive equity-free cash flow yield towards the end of our forecast period, as well as supporting our DCF valuation."