Broker snap: N+1 Singer lowers IFG to hold from buy

23rd Dec 2013 12:44

Friday´s announcement of an 'approach' for IFG Group came as little surprise to analysts at N+1 Singer, given that the company has been undervalued for an extended period of time and the sustained positive key performance indicators (KPIs) at James Hay, strong balance sheet and relative recent disposal of its International division. However, since the approach remains highly conditional and at an early stage they opted to lower their recommendation on the stock to 'hold' from 'buy' - with a price target of 150p - following the share price movements as a result of the announcement. Nevertheless, they believed that any future offer should recognise the scope which exists for "value creation based on the restructuring and cost investment which forms a foundation for significant earnings growth to come in future years."Thus, a valuation multiple, of nine times´ enterprise value to operating earnings [EV/EBITDA] applied to the brokers´calendar year 2015 forecasts, alongside a premium, would yield a valuation of at least 175p, N+1 Singer explained to clients on Monday. A "compelling" valuation would have to come in north of the 190p mark, it added. That would equate to a ten times´ calendar year 2015 EV/EBITDA ratio and represent a 37% premium to the price prior to the announcement."We believe that the business has significant earnings growth potential as a result of the actions taken by management," the broker concluded by saying. AB