Analysts at Berenberg raised their target price on telecommunications tower infrastructure group Helios Towers from 203.0p to 224.0p on Tuesday, stating they believe the shares offered scope for “material upside over the medium term”.
Berenberg said upside potential was underpinned by the company’s “unique” towerco business model, which it feels offers investors currency-neutral exposure to the “high-growth dynamic of frontier markets” as it also allows the company to earn “outsized returns” on capital employed relative to the operating risk inherent in these markets.
The German bank, which reiterated its ‘buy’ recommendation on the stock, also updated estimates to reflect tenancy ratio growth, with net adds expected to be 1,000-1,500, and operational efficiency opportunities arising from the acquisition of 5,100 towers in the Middle East after recent deals in Oman, Malawi, Madagascar, Gabon and Chad.
However, Berenberg said it was still awaiting a “revised 2025” vision from the group, with communication expected to be received in the third quarter.
“Helios is trading on FY 2022 EV/EBITDA of circa 12x. This is in line with the median of its emerging-market peers, but 25% below the top end. We believe Helios’s uniquely currency-protected and high-returns business deserves to trade at the higher range of its peer group.”
Analysts at Credit Suisse trimmed their target price for shares of Hargreaves Lansdown from 1,520.0p to 1,430.0p on Tuesday following the investment platform’s latest full-year numbers.
In their opinion, specific headwinds such as lower margins on funds and in share dealing, as well as higher costs offset the general tailwinds for the industry.
“We believe ambitious targets on hard-to-forecast share dealing revenues, along with uncertainty on costs and ferocious competition, shrink Hargreaves’ margin for error,” they said.
In the last quarter of the 2019 financial year, Hargreaves registered £900m of net flows excluding books purchases. But fast-forward two years later and despite £52.0m of marketing and distribution spend, and 420,000 more clients, it recorded the same net flow.
It was a similar story for share dealing with Hargreaves’ margin targets implying 790,000-990,000 deals each month. Credit Suisse had pencilled in around 700,000 per month but said that was “generous” given the normalisation already evident in retail trading.
In parallel, marketing costs were expected to continue to increase by double digits, alongside staff costs, although dealing costs were also seen normalising as international volumes reduced.
“Despite the limited downside implied by our TP, we continue to see a risk of further de-rating, with catalysts being weak share dealing, low Net New Business, and higher costs,” said CS, which added that Hargreaves’ pricing structure remains unsustainable, and underpins its fragility.”
JP Morgan backed Babcock International’s turnaround plan as the bank increased its target price for the engineering group’s shares.
The new management team’s disposals plan will strengthen the balance sheet and refocus the group on defence, aerospace and security, JP Morgan said. Babcock intends to sell about five businesses to raise more than £400.0m over the next 12 months.
That figure is cash value but the enterprise value will be higher because some sales will have lease liabilities attached, the bank said. If sales are held up the company has arranged a rolling £300.0m debt facility and negotiated an increase in its covenant. The disposals should reduce net debt to 2.5 times earnings.
The bank increased its target price for Babcock shares to 400.0p from 350.0p, giving potential for about 40% potential return over two years.
Chief Executive David Lockwood said Babcock’s earnings margin can strengthen to about 9% in the medium term from 5.6% at the end of March 2021. The passing of Covid-19’s impact, cost cuts and disposals will contribute to the increase, JP Morgan analyst David Perry wrote in a note to clients.
Babcock wants to bring year-end net debt and average net debt back into line by scrapping the practice of squeezing working capital at the year-end. It will take the hit upfront over two years, creating near-term pain for long-term gain, Perry said.
