Broker tips: Future, DotDigital, Kainos, Card Factory

(Sharecast News) - JPMorgan Cazenove initiated coverage of media group Future on Wednesday with an 'overweight' rating and 2,500.0p price target, referring to the company as a "media powerhouse". JPM noted that Future operates a portfolio of brands covering 16 content verticals across the UK and US, monetised through three channels - advertising (35% of revenue), affiliate (34%), and cirect consumer (31%).

"Under the leadership of chief executive Zillah Byng-Thorne (announced intention to step down in 2023), the company has reinvented itself from a print heritage business into a media powerhouse, building revenues from £66.0m in 2014 to £826.0m in FY22E, through both organic growth and substantial M&A," it said.

JPM pointed out that the shares have underperformed year-to-date, down 59% versus the Stoxx 600 media index down 11%, and de-rated on reopening concerns, rising rates and announced leadership changes.

"On re-set valuation (6.7x EV/EBITDA23 for +9% EBITDA CAGR23-25E) and resiliency in earnings, we see valuation offering an attractive entry point," it said.

Analysts at Canaccord Genuity lowered their target price on software firm DotDigital from 170.0p to 140.0p on Wednesday following the group's 2022 full-year results.

DotDigital's FY earnings revealed 8% organic growth, predominantly driven by its Asia Pacific operations and sales via third-party channels/connectors, while its Europe, Middle East, and Africa division and its US wind faced "well-flagged slower growth trajectories".

Adjusted underlying earnings and pre-tax profits of £14.5m were 4% ahead of Canaccord's forecast, supported by flat gross margins of roughly 82% and "modest" 6% opex growth.

The Canadian bank, which reiterated its 'buy' rating on the stock, believes that the soft macro environment, plus downgraded growth expectations at most US MarTech peers, had caused investor concern around the group's 2023 outlook.

However, it also noted that it was encouraged by management's decision to reiterate guidance of "continued profitable growth", with a return to double-digit percentage expansion expected in the mid-term.

Berenberg upgraded software firm Kainos on Wednesday to 'buy' from 'hold' and hiked its price target on the stock to 1,700.0p from 1,200.0p following the company's "strong" first-half results.

The bank said growth exceeded its expectations and noted that while margins were lower, it was not for the reasons that it had feared.

"In fact, the underlying profitability of the business was masked by an exceptionally large investment in the company's software products (a good thing) and by fewer billable days caused by bank holidays (a one-off).

"With management commenting that many customers are 'accelerating' their digital investment agendas, it appears there will be no slowdown in the near term."

Berenberg said that as the true profitability of the business swung through in the second half, there was now scope for upside.

"While circa 30x 2024 price-to-earnings looks expensive, we are now far more confident in upside scenarios playing out. This would reduce the multiple to beneath 20x."

Analysts at Liberum raised their target price on greeting cards retailer Card Factory from 110.0p to 135.0p on Wednesday, stating the start of an upgrade cycle had set the group apart as "a top pick".

Liberum said Card Factory's Tuesday trading statement led it to raise full-year 2023 pre-tax profit estimates by 32% - with half driven by "better trading" so far in H2, and half from one-off benefits.

The analysts noted that new guidance took "a cautious view" on Christmas, and also acknowledged that Omicron's impact in 2021 meant there was scope to recoup "lost" prior year sales.

"With incremental sales dropping through at a 33% margin, this means upgraded guidance could still very well be beaten. We forecast FY24E FCF of £24.0m (vs. a pre-Covid five-year av. of £61.0m), implying a 12% yield. On a CY23 PER 6.2x and EV/EBITDA 3.5x the shares remain very cheap. CARD remains firmly a top pick," said Liberum.

"The board now believes that EBITDA for FY23E y/e Jan) will be at least £96.0m versus current consensus of £88.8m. This EBITDA would approximate to PBT of £37.5m, which compares to the current consensus of £29.3m."