Broker tips: XP Power, Pets At Home, Experian

Analysts at Berenberg hiked their target price on power supply manufacturer XP Power from 4,980.0p to 5,230.0p on Tuesday, stating its upgrade cycle was continuing.

Berenberg made the adjustments to its assumptions on XP Power after the group issued a “positive” third-quarter trading update on Monday, with 32% year-on-year organic revenue growth and a 2% improvement to order intake.

The German bank also said XP’s cash performance “continued to impress”, proving that its supply chain was working well, as net debt reduced to £28.2m from £34.4m despite strong top-line growth.

“Overall, we continue to regard XPP as a top pick in the UK industrials sector due to positive earnings momentum, strong medium-term growth prospects, and quality characteristics, which we believe continue to be overlooked by the market,” said Berenberg, which also increase its full-year 2020 earnings per share estimates by 9% and reiterated its ‘buy’ rating on the stock.

Analysts at Citi bumped up their profit estimates and target price for shares of Pets at Home Group, highlighting both its “strong” market share and structural market growth which might pave the way for the generation of excess capital.

The broker, which stood by its ‘buy’ recommendation for the stock, also highlighted the strong new customer growth seen during Covid-19 and the company’s “low” balance sheet leverage.

Ironically, sales comparables could prove a headwind in the fourth quarter, but supported by investment the businesses’ “strong” pet care ecosystem “should continue to drive opportunities to capitalise on new and existing VIP customers.”

In turn, low leverage meant that Pets at Home “should have strong flexibility to react to a deterioration in consumer outlook, to invest or to return excess capital to shareholders”.

Citi raised its estimate for the company’s profits before tax in 2021 by 20% to £91.0m and those for 2022 and 2023 by 13%, resulting in a higher target price of 460.0p, versus 355.0p beforehand at an estimated price-to-earnings multiple of approximately 24 for 2022.

Credit Suisse upped its price target on credit-checking firm Experian to 3,600.0p from 3,450.0p on Monday as it lifted its earnings per share estimates by 2-4% for FY22-23 to reflect strong growth in Brazilian and North American B2C.

The bank, which rates Experian at ‘outperform’, said the Brazilian B2C market is a new and rapidly growing business that can add significantly to group growth.

“We estimate an addressable market of $2.3bn compared to $40.0m revenues in FY20 highlighting the opportunity set in a country where Experian already is the clear leader in the B2B market,” it said.

“We estimate that these nascent consumer markets in Brazil and North America can add 2.4% compound annual growth rate to group organic growth over the three years.”

CS said this builds on leading B2B data and decisioning operations that collectively can generate 13% cash-backed EPS compound annual growth rate over the three years to FY24, on its forecasts.

“Multiples are above historic averages but in a low interest rate environment still not, in our view, reflecting the sustainable, high return growth enabled by very strong core, internal innovation and vast new addressable markets.”

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