Broker tips: GB Group, Halma

(Sharecast News) - Analysts at Berenberg lowered their target price on software and services firm GB Group on Wednesday but stated the stock still represented "a good buying opportunity". Berenberg stated that having optimised its data collection process, GB Group offered a scalable platform that can automatically apply different workflows depending on the use case - be it during customer onboarding or for ongoing monitoring.

The German bank stated this compounder benefitted from "high revenue visibility", up to roughly 80% of group revenues, good operating leverage and industry tailwinds, and also noted the firm had delivered a roughly 20% earnings per share compound annual growth rate over 2013-21 and about 100% cash conversion.

Following GB's acquisition of Acuant in November at "an expensive multiple", the stock slumped approximately 40%. However, over the medium term, Berenberg said this could turn out to be "a good strategic move" if the revenue synergies it expects from the deal flow through.

"We reduce our price target to 850p to reflect lower peer multiples, however with the stock trading at c27x 2023 P/E, a 10% discount to its five-year average of 30x (excluding the valuation spike during the COVID-19 period), we think now is a good time to start building a position in this company with a multi-year view," said the analysts, who stood by their 'buy' rating on the stock.

Analysts at Shore Capital Markets took a fresh look at safety equipment company Halma on Wednesday following the group's positive trading statement earlier in the session.

Shore Capital said overall, Halma had made "good progress" during the first half of the 2022 trading year, with "substantial growth" expected for the year as a whole due to both order intake and revenues projected to be higher year-on-year.

The bank, which has a 2,516.0p target price and 'buy' rating on the stock, stated that Halma had "adapted and responded effectively" to operational challenges stemming from the Covid-19 pandemic and continued geopolitical tensions in Eastern Europe.

ShoreCap said Halma has direct exposure to Russia and Ukraine, but noted that it had ceased all sales into the former, which accounts for less than 0.5% of group revenues, and had no "significant" supply chain dependency on either country.

"In our view, Halma is a high-quality business with long-term growth drivers (increasing health and safety regulation, demand for healthcare services in developing economies and demand for life-critical resources) and strong operating margins," said ShoreCap.

"We believe customer investment cycles could recover faster (as they look to meet increasing regulatory standards and greater leverage from a Covid-19 recovery), thus we could see further upside to our assumptions and Halma growing by more than 15% CAGR which is what our valuation currently assumes."