RBC Capital downgrades Alpha FMC after share price surge

The company said on Wednesday that it had received a non-binding indicative all-cash proposal from investment firm Bridgepoint Advisers and that private equity firm Cinven was also considering making an offer.

RBC noted that the shares surged 39% on the news.

"Whilst clearly two potential bidders is positive, there is no formal bid or an indicative price yet, so with the current price circa 10% above our previous price target, we see risk/reward as less in favour and downgrade to sector perform, although we raise our price target to 465p," RBC said. The PT was lifted from 420p.

"We continue to believe AFM is a well-run business, although it has limited visibility, there is no real operational leverage in the business (to grow you have to add people) and whilst it has a good M&A track record, deals are inherently risky in consulting businesses," the bank said.

"We have rolled forward our discounted cash flow a year, which increases our price target to 465p but we struggle to get materially above the current share price. We thus think a much higher multiple to that implied by the current share price is unlikely."

RBC said that on a risk/reward basis, it makes sense to take profits here.