Canaccord downgrades ITE Group as Russia-Ukraine tensions escalate

3rd Mar 2014 10:55

Canaccord Genuity has downgraded its rating for exhibitions and conferences organiser ITE Group from 'buy' to 'hold', raising concerns about profit forecasts given the recent weakness of the rouble amid increasing tensions between Russia and Ukraine.Analyst Simon Davies said that the escalating geopolitical situation in Ukraine is creating "increasing risk" for ITE, given its core focus on Russia and the surrounding regions.ITE said earlier this year that Ukraine is "only a small part" of the business and any effect from the political uncertainty would be "immaterial" to group results.Davies said: "At this stage, ITE's events in Ukraine are still taking place, and the impact will likely be more an issue for FY15. Of greater concern, however, is the potential response from the international community on Russia, where ITE generates 65% of group profits."He highlighted the risks emanating from possible trade sanctions and visa restrictions suggested by some corners which could seriously affect business for ITE.Davies explained that every one-rouble move in the rouble/pound exchange rate has a £0.5m impact on ITE profits. The rouble/pound rate has now weakened to 61, from the 56 which Canaccord was modelling at the time of the company's first-quarter update in January.Canaccord has cut its target price for the shares from 315p to 263p.The broker said the stock is trading on a calendarised price-to-earnings ratio of 15.5 for 2014 forecasts, "which feels relatively high to us given the increasing risk to its core market".The stock was down nearly 13% at 245.3p by 11:18 on Monday.BC