Broker tips: System1, Compass Group, Anglo Pacific


Analysts at Canaccord Genuity upgraded their position on market research company System1 from ‘hold’ to ‘buy’ on Wednesday, citing “predicting profitable growth”.
Canaccord Genuity, which reiterated its 385.0p target price on the stock, said System1’s early morning update highlighted “strong momentum” that was building in data products through what was “a pivotal year” for the group.

From an almost standing start, the success of System1’s Test Your Ad offering, coupled with new customer wins, has seen full-year data revenues increase by £8.4m to an estimated £9.7m, representing year-on-year growth of approximately 560%.

As a result, data now provides 40% of the group’s £24.1m revenues, in line with the analysts’ estimates, with the contribution from its data increasing to 45% in the second half.

“We believe the success of System1’s disruptive data-driven platform through FY22E provides much encouragement and the group has increased investment (as planned) in people, product, and go-to-market strategy to secure further growth as it attacks a $1.0bn advertising prediction market,” said the Canadian bank.

“Investment is likely to continue to run at elevated levels through FY23E with the group expecting revenue expansion and higher profits to flow which will likely be weighted to the second half.”

Over at Morgan Stanley, analysts sounded a “positive” note on the outlook for Compass Group, telling clients that the catering services outfit was likely to beat its full-year guidance for organic sales growth.

On 3 February, the group guided towards sales growth of 20-25%, implying a sharp slowdown in the back half of the fiscal year.

However, analyst Jaime Rollo noted how even during 2008-09 financial crisis, companies like Compass had posted organic sales growth in a range of 1.0% to -1.0%.

He also highlighted the trend towards outsourcing as the cost inflation and supply chain pressures resulting from Covid add to the challenges facing

Furthermore, 55-65% of contract caterers revenues came from a relatively defensive client base, including companies in Education, Healthcare, Energy and Defence.

MS, which reiterated its ‘overweight’ rating on the stock, also cited the growing contribution of new contracts to Compass’ sales and favourable exchange rate moves as reasons why it believed the company will upgrade its own forecasts.

“Given the company seems to be coming out of Covid stronger than it entered, with management guiding to at least 100bps higher sales growth from contract wins, plus a stronger balance sheet, we think it deserves a higher multiple.

Finally, analysts at Berenberg raised their target price on mining company Anglo Pacific from 250.0p to 260.0p on Wednesday following a first-quarter earnings beat thanks to coal price tailwinds.

Berenberg stated Anglo Pacific had reported a “strong Q1”, with total portfolio contribution coming in at $43.6m, beating estimates of $38.9m, driven mainly by a beat from royalties related to its Kestrel metallurgical coal in Australia.

The German bank, which reiterated its ‘buy’ rating on the stock, highlighted that the royalty contributed $33.5m versus its $27.2m estimate due to improved metallurgical coal prices.

Elsewhere, Berenberg noted that other portions of Anglo Pacific’s portfolio had delivered in line with expectations, with cobalt from Voisey’s Bay in Canada contributing $5.2m net, and coming in as the second-largest portfolio contributor.

“We continue to like the company’s portfolio for its attractive long-term exposure to energy transition metals and its natural hedge against cost inflation, alongside the company’s stable circa 4% dividend yield,” said the analysts.

“In the near term, strong metallurgical coal prices are a tailwind, and, if we mark our model to market, our 2022 earnings per share increases to $0.45/share from $0.40/share, and our EBITDA increases to $117.0m from $104.0m, above consensus of $84.0m.”

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