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Broker tips: Vaalco Energy, Capital & Regional, Darktrace

Analysts at Canaccord Genuity slightly raised their target price on hydrocarbon exploration firm Vaalco Energy from 335.0p to 345.0p on Monday, stating the firm was currently “well set for growth”.
Canaccord said Vaalco’s third-quarter results had highlighted the company’s operational and financial strength, emphasised by its ability to invest significantly in Etame Marin in Gabon, maintain a debt-free balance sheet with ample cash resources, and now introduce a dividend from the first quarter of 2022.

The Canadian bank, which reiterated its ‘buy’ rating on the stock, noted that capital investment was “shifting gears” in 2022, as the bulk of expenditure associated with both the group’s four development/appraisal wells at its Etame Marin asset and the conversion of its FSO were set to take place in the coming year.

Canaccord highlighted that from the first quarter of 2022, production “should start to rise” and that by the year’s fourth and final quarter, unit operating costs “should decline further” due to the benefits of its more cost-effective FSO.

Over at Berenberg, analysts upgraded property asset manager Capital & Regional from ‘sell’ to ‘hold’ on Monday, citing the firm’s now strengthened balance sheet.

Berenberg said Capital & Regional’s recent £30.0m equity rase and £19.0m debt restructuring had “significantly mitigated” its prior primary concern regarding the firm – overleverage.

The German bank said this action “should safeguard” Capital & Regional as a going concern, although it noted it had come “at a cost” – with NTA dilution and a further reduction in share liquidity.

“Although the share price more than allowed for this dilution, reduced liquidity and minority control is likely to present a significant barrier to investment for most investors, limiting rerating potential,” highlighted Berenberg, which also increased its price target on the stock from 50.0p to 70.0p.

Berenberg also took a fresh look at Darktrace on Monday, with shares in the cybersecurity firm surging following heavy losses last week after reiterating its ‘buy’ stance on the company and stating that any share price capitulation was a result of “fear not fact”.

Shares in the company tumbled last month on the back of a Peel Hunt research note, in which the broker said there was “a disconnect between the valuation and the ultimate revenue opportunity”.

However, Berenberg said a visit to Darktrace’s headquarters in Cambridge last week confirmed its confidence in the group. The bank said it was shown “extensive product demonstrations and came away with a better understanding of the product and its real-world applicability”.

“Management indicated that, while the focus is still on winning new customers, there has also been more focus on upsell campaigns also. These are being created by the company’s strategic marketing teams and are feeding account executives with more granular information on customer needs to drive upsell,” it said.

“This, coupled with churn reducing because of an enlarged customer success team, should enable the net retention rate (NRR) rates to continue to trend upward.”

Berenberg’s added that its forecast for NRR were now beginning to seem increasingly conservative, particularly as management confirmed its two new product categories – prevent and pheal – will be launched by the end of 2021 and 2022 respectively.

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