Analysts at Berenberg initiated coverage on essential components and solutions provider Essentra at ‘buy’ on Tuesday, stating the firm was “more than the sum of its components”.
Berenberg said Essentra provided “a textbook example” of a company selling businesses to focus on its strengths, with the firm currently making components and producing packaging for the medical industry, while also being the world’s leading independent maker of cigarette filters.
The German bank, which hit the stock with a 360.0p price target, also highlighted that the company had already announced a strategic review of two of its three divisions by the second quarter of 2022, at the earliest, and could become a pure-play components business.
“This should act as a powerful catalyst, as Essentra makes its highest margins and returns in this area, where peers such as Electrocomponents trade on significantly higher multiples (12.3x 2022E EV/EBITDA),” said Berenberg.
“Our investment thesis depends upon the successful disposal of its packaging and filters businesses – after which we would expect its nimble components business to rerate in line with peers to a level of 11.0x EV/EBITDA. At current market prices, Essentra trades at 6.6x 2022E EV/EBITDA or 11.1x 2022E P/E. Our price target of 360.0p per share offers 40% upside.”
Jefferies downgraded Travis Perkins to ‘hold’ from ‘buy’ on Tuesday as it slashed its price target for the stock to 1,416.0p from 2,189.0p.
The bank said a significant portfolio simplification over the last 18 months or so, management setting out a longer-term vision at the September 2021 capital markets day and scope for ongoing extra cash returns gives it confidence that Travis Perkins is now better placed to be a core longer-term holding in investor portfolios.
Jefferies said it sees Travis Perkins as a much simpler group now, which is already building a reputation for steady delivery in line with or ahead of expectations, thus marking a clear break from the period of operational hiccups pre-2019.
In addition, the balance sheet appears in much better shape and Jefferies forecasts net debt/EBITDA to remain easily below the target of 1.5-2x, suggesting extra cash returns may become an ongoing feature.
“However, with fewer catalysts compared to when we upgraded in September 2020 and elevated macro nerves, we downgrade to hold,” it said.
ITV surged on Tuesday after Bernstein upgraded its stance on shares of the broadcaster to ‘outperform’ from ‘market perform’.
Bernstein, which trimmed its price target to 124.0p from 125.0p, said the investor reaction to ITV’s new streaming platform ITV X and the accompanying investment plan had been brutal, with the stock down 33% – a £1.5bn value erosion – since the announcement.
“We think a steep margin reset now beats waiting to see just how bad the terminal growth would get otherwise,” it said. “After the pain there should be at least some gain, even if none is being priced in now.”
“Looking beyond immediate cash flows might not be popular this year, but ITV’s plan looks to us like a serious effort to tackle the company’s classic case of innovator’s dilemma,” added Bernstein.
“It may or may not be too late but isn’t too little, and even a chance to avoid a terminal advertising decline represents upside from these levels.”
