Broker tips: Sage, Ergomed, Travis Perkins, Smith & Nephew

(Sharecast News) - Analysts at Canaccord Genuity upgraded software firm Sage from 'hold' to 'buy' on Thursday, stating the group was "more resilient than you think". Canaccord Genuity said slowdown fears may be overdone. As economies in Sage's key markets of the US, UK and Europe begin to slow, Canaccord believes the potential impact of this on the group's SME customer base and future growth expectations had become "an understandable" investor concern.

"We are unsure of the severity and duration of the coming slowdown, but assuming a sharp recession is avoided then we see several factors shielding FY23 consensus," said the analysts, who also raised their target price on the stock from 760.0p to 875.0p.

The Canadian bank highlighted Sage's ability to grow recurring revenues by a low-to-mid single-digit percentage during 2008-09 and 2020, its recent addition of new features and modules for medium-sized enterprises, a benefit to UK demand stemming from the Making Tax Digital legislation, and a strong US dollar.

"Our new target is based on a blend of 25.5x cal. 2023E P/E, a 10% premium to the historic average, and a 2.4x PEG ratio in line with listed peers. We believe this is warranted due to its high recurring revenue share, expected margin expansion & accelerating EPS growth," said Canaccord.

Analysts at Berenberg initiated coverage on biopharmaceutical industry services provider Ergomed at 'buy' on Thursday, stating the group was "perfectly positioned".

Berenberg said it liked the company for its exposure to two growing end markets and its "niche" market positioning.

"Ergomed grew revenues at a CAGR of 28% in 2014-21 as it has benefited from growing clinical trial volumes, a shift to outsourcing and its positioning in higher-growth therapeutic areas like oncology. While there are several larger global contract research organisations, Ergomed is able to compete with these businesses given its depth of experience in a narrower range of areas," said Berenberg.

"Given that the majority of drug trial sponsors' key criteria for choosing a CRO partner are therapeutic area expertise and patient sourcing capabilities, being a specialist helps a smaller player like Ergomed to have a competitive offering. With Ergomed estimating that its addressable markets will grow at 10%-plus in the medium term, we forecast a relatively conservative 11% revenue CAGR in 2022-24E."

Looking ahead, the German bank believes Ergomed to be well positioned to grow ahead of both end-markets and take share through a combination of both organic and inorganic growth.

Berenberg also issued the stock with a 1,450.0p target price.

RBC Capital Markets cut its price target on shares of Travis Perkins on Thursday following the company's first-half results earlier in the week.

"We adjust forecasts to reflect the H1 Toolstation miss and higher losses expected for the FY in Europe," the bank said.

"Our EBITA forecasts come down 6% for this year and 2% for next. Our forecasts for Merchanting are largely unchanged, whilst we remain confident in our long-term prognosis for Toolstation."

RBC trimmed its price target to 1,400.0p from 1,500.0p as a result of these changes.

"Whilst there is a lack of obvious catalysts, we see the shares as too cheap," RBC said, as it reiterated its 'outperform' rating on the stock.

Analysts at Credit Suisse lowered their target price for shares of Smith & Nephew after what they described as a "mixed" set of interim results.

On the back of the medical device maker's lower projections for organic growth and foreign exchange headwinds in the form of a weaker euro, the bank trimmed its 2022-24 sales forecasts by 3% and cut their earnings per share estimates to reflect higher cost inflation.

Marking to market for a weaker pound and rolling forward their discounted cash flow estimates also led the bank to reduce its target price from 1,540.0p to 1,400.0p.

"While we see Smith & Nephew stock as materially undervalued and thus are positive, we acknowledge that the business is under material margin pressure, especially in an inflationary environment given limited room to absorb this," CS added.

The analysts did however stick with their 'outperform' recommendation on the shares.