Broker tips: DiscoverIE, Virgin Money, Boohoo, Victrex, Synthomer

(Sharecast News) - Analysts at Berenberg lowered their target price on electronic components manufacturer DiscoverIE from 1,150.0p to 920.0p on Thursday but stated they still sensed "an opportunity" for investors. Berenberg noted that DiscoverIE issued "a strong set" of FY 2022 results earlier in the week, with organic order growth up 36% year-on-year, organic revenue growth up 18%, and underlying margin progression of 70 basis points year-on-year to 10.8%.

While Berenberg was mindful of the "uncertain macro backdrop", it still feels DiscoverIE is "well placed" and reiterated its 'buy' rating on the stock despite the target price reduction.

The German bank stated structural growth drivers across the group's key end-markets, including renewable energy and medical, should grow ahead of industrial production, while the more cyclical custom supply division being sold off during the recently wrapped up trading year and the acquisitive side of the business being "historically accelerated" in times of softer organic growth as "more attractive" M&A opportunities come to market.

However, despite both this and a record full-year 2022 performance, DiscoverIE shares were among the hardest hit in the sector, de-rating 42% year-to-date.

"Against an uncertain backdrop, we believe it is important to emphasise the resilience of DiscoverIE's business model," said Berenberg.

Citi reiterated its 'buy' rating on Virgin Money on Thursday as it lifted the price target to 320.0p from 315.0p.

The bank noted that despite beating first-half consensus expectations and enhancing FY22 guidance, the shares traded off after the results.

"We attribute this to the communication on the conference call, which seemed to be somewhat defensive on the trajectory of net interest margins (FY22 guidance implied a decline in 2H22 versus 2Q22), on the ability to absorb cost inflation and on the timing for re-starting buybacks (despite introducing a more formal capital return policy)," it said.

"We believe the NIM guidance is overly prudent and still see a small absolute reduction in costs after this year, albeit we do expect the company to miss the 2024 cost guidance."

Citi added that it sees "significant value" form here and an estimated total return of around 150%.

Analysts at Liberum reiterated their 'hold' rating on retailer Boohoo on Thursday following the group's "weak start" to the trading year.

Liberum noted that Boohoo's first-quarter net revenues declined 8% year-on-year, both below consensus and its own expectations - driven by a first-ever sales decline in the UK, where it believes the company has started to lose share after two years of "significant gains", and a major 28% decline in the US, a result of weak delivery offering and rival Shein taking further ground.

The broker, which also stood by its 70.0p target price on the stock, highlighted that gross margins declined 220 basis points year-on-year to 52.8% against a tough comparative but were up 240 basis points versus the second half of the 2022 trading year.

"Guidance for FY'23E was set conservatively and is maintained, but we believe investment into both gross margin to clear stock and stimulate demand, and in marketing and distribution to attract customers would be needed to achieve growth this FY," said Liberum.

"We expect margins to be in the lower half of the 4-7% range. The shares appear cheap at 0.4x 12m forward EV/sales (vs. 2.5x pre-pandemic) and 7x EV/EBITDA, but near-term risks are high and positive catalysts are c. 12 months away."

Barclays upgraded Victrex on Thursday and downgraded Synthomer as it took a fresh look at European chemical stocks.

Victrex was upgraded to 'overweight' from 'equalweight' and the analysts' price target on the stock was lifted to 2,200.0p from 2,060.0p.

Barclays said Victrex should have outperformed other cyclical chemical stocks this year given its relative resilience in a recession, but instead it has materially underperformed.

On the other hand, Synthomer was downgraded to 'equalweight' from 'overweight' as its price target was cut to 323.0p from 420.0p.

Meanwhile, it noted that Synthomer is "one of the more vulnerable stocks" and said it was downgrading despite the recent re-rating.

Reporting by Iain Gilbert and Michele Maatouk at Sharecast.com