Canaccord upgrades TT Electronics to 'buy'

24th Aug 2016 09:00

(ShareCast News) - TT Electronics shares gained on Wednesday as Canaccord Genuity raised its rating on the stock to 'buy' from 'hold' and lifted its target price to 180p from 165p.Canaccord said TT Electronics' first half results on 11 August showed strong progress across the group and "we have become increasingly confident in the company's ability to deliver its target of sustainable, profitable growth in the medium term"."This is a very different and, in our view, much improved business to three years ago; however, current valuations (FY2 PE 12.2x vs. 3yr avg. 12.6x) do not appear to reflect this."The British maker of automative parts reported a 25% increase in first half pre-tax profit to £11.4m on a 5% rise in revenue to £277m, driven by its Transportation Sensing and Control division returning to profitability. Underlying operating profit increased by 32%to £13.7m. The acquisition of electronics manufacturer Aero Stanrew in December 2015 and ongoing improvements in cost efficiency also supported the figures."With demand for electrification, automation, and connectivity increasing, the structural drivers are attractive, and we believe TT is becoming progressively well aligned to capture these trends," said Canaccord."A key component of this is the continued investment in research and development, which the company has grown +20% over the last two years to c.6% sales (ex. IMS)." Canaccord said downward pricing pressures remain a headwind, particularly in the Transportation Sensing and Control division, but the broker expects the new product cycle and operational improvement initiatives to offset the risk. Shares rose 2.67% to 149.90p at 0841 BST.