Broker tips: Informa, Associated British Foods, NCC Group

21st Oct 2016 17:06

(ShareCast News) - Informa got a boost on Friday as Berenberg upgraded the stock to 'buy' from 'hold' and lifted the price target to 800p from 740p.It said the company's strategy of portfolio improvement has delivered greater progress than investors give it credit for. Recent acquisitions in Exhibitions and investment in Academic Publishing/Business Intelligence have left Informa with a higher-quality business, with the scale to better exploit growth opportunities across existing and new markets."This is not reflected in the valuation, so we upgrade to buy, Berenberg said. "At 13x 2018 earnings, yet offering around 9% earnings per share compound annual growth rate and with a 3.3% dividend yield, we believe Informa is mis-priced."The bank said the acquisitions of Hanley Wood and Penton Information Services have built a diversified geographic operating base, at scale, for Global Exhibitions.In addition, the purchases boost the footprint of the US division, which has a market with an improving outlook and better pricing power fundamentally.Berenberg said that once the Penton acquisition is finalised, exhibitions will represent 28% of group revenue, making it broadly the same size as the company's academic publishing and business intelligence divisions. It will also ensure that exhibitor/attendee revenues are roughly a third of the group, matching the contribution of subscription revenues."As a starting point, we believe this greater balance and diversification across the divisions will benefit group growth: exhibitions provide a greater ability to capture revenue growth in any period of macro-economic expansion (we now forecast group organic growth in the 3-4% range from 2017)."Furthermore, as our recent meetings with industry experts suggest, exhibitions should become more resilient in periods of weaker economic growth given that the increasingly fragmented media landscape means key opportunities for professionals to meet face to face have ever-greater scarcity value." Jefferies upgraded Primark owner Associated British Foods to 'hold' from 'underperform' and lifted the price target to 2,450p from 2,300p.The rating upgrade follows a 12% drop in the share price since the bank downgraded the stock in September."With the upcoming finals (8 November) set to confirm a positive bias to earnings direction over the near term, and with the group (and Primark's implicit) valuation at multi-year lows, we upgrade our recommendation."Jefferies said it estimates that at peak multiples in late 2015, investors were paying close to 40x forward price-to-earnings for Primark. That has now reduced to 23x, which the bank said may provide a measure of the opportunity for some. For Jefferies it is a rational normalisation of what had become overheated expectations on US prospects.The bank said that while the US will contribute a longer-term additional growth avenue to Primark, the margin profile has also changed for good. Canaccord Genuity cut its rating on NCC Group to 'sell' from 'hold on Friday and lowered its target price to 194p from 297p after the cyber security company warned that profit growth will be hit by "a number of setbacks".In a trading update for first four months to 30 September on Thursday, the group said it experienced a number of setbacks in the Assurance Division including three large unrelated contract cancellations, a large contract deferral and difficulties with some managed services contract renewals.NCC said it was too early to quantify the likely impact in the current financial year. For the time being profit expectations for the full year remain in line, but that profit growth would be "more biased towards the second half of the year than initially expected".Chief executive Rob Cotton tried to reassure that the assurance problems were "unrelated" and that, overall, the company was making good organic growth progress across the business in what remained a fast growing market. Group revenues increased rose by 36% during the four months to £79.6m, compared to £58.5m the same period a year ago, with organic growth of 21%."While revenue in the trading period exceeded expectations in Assurance, Escrow was below target and excluding currency the growth was around 1%," Canaccord said."We believe Assurance revenue was driven by lower margin product reselling. With the dollar appreciating versus sterling post Brexit, US security products are now priced higher and potentially squeezing reseller margins."Canaccord said it was "sceptical" of management's expectation that profitability will recover in the second half and that it will achieve full year profit targets.The broker said contract renewal issues for Accumuli contracts will result in a delay in revenue recognition and a higher cost of delivery.Canaccord has lowered its earnings forecast by 16% in fiscal year 2017 and 7% in 2018 and applied a reduced 18x profit multiple to the Assurance business versus 22x previously."Besides earnings expectations, we highlight the importance of monitoring free cash flow, which has shown a declining trend in the last couple of years," the broker said."This should improve going forward following the closure of Domain Services but should remain an area of focus for investors."