Broker snap: Citi upgrades SDL to 'buy'

4th Apr 2013 10:57

Citigroup has upgraded its rating for translation and communications software group SDL from 'neutral' to 'buy', saying that expectations have been re-based following the recent sell-off."SDL has had a tough start to 2013 with the shares down 24% year to date reflecting the negative impact of increased investment on 2013 guidance," said analyst Hugo Mills."While it remains to be seen if SDL can gain some sales traction in its Technology business, we see upside to the shares even if it is partially successful."Mills said that while investment has had to increase this year by £8-9m to drive an increase in its Technology sales, SDL is "increasingly well positioned" to meet full-year expectations.The broker has cut its 2013 and 2014 earnings per share estimates by 22% and 16%, respectively, to reflect the revised guidance for this year. As such, the target price for the shares has been brought down from 530p to 485p.However, with the shares trading at 13.6 times 2013 earnings and at a 22% discount to their long-run forward 12-month average, Citi has turned more positive."While the company may take longer to drive growth in tech. sales, we would suggest, if it can be successful, there is good upside to its numbers and shares."The stock was up 1.74% at 416p by 10:55 on Thursday.BC