Broker tips: Wood Group, Kitwave, Anglo American

(Sharecast News) - Jefferies upgraded Wood Group to 'buy' from 'hold' on Monday, marking the first upgrade to 'buy' in more than five years. Jefferies said improved medium-term cashflow outlook saw its discount cash flow valuation almost double and highlighted that it views "the weak market reaction" and analyst downgrades since the firm's capital markets day as an opportunity.

Jefferies, which also hiked its price target on the stock to 190.0p from 150.0p, said it finally has confidence that the years of cash exceptionals since the Amec Foster Wheeler deal are under control and recommended that investors "see the positive Wood through the Trees".

"We have confidence in WG's guidance on cash exceptional outflows given at its 29 Nov 2022 CMD and therefore finally see a route to reducing cash exceptionals which, in parallel to other CMD guidance on revenue & EBITDA margin, means the balance sheet will remain in its target range of 0.5 - 1.5x (albeit at the top end of the range) and Wood will be able to focus on delivering growth and returns in its target markets," the bank said.

Jefferies said it continues to see headcount as a limiting factor in revenue growth for a reimbursable business which is why inorganic bolt-on M&A is important. However, in the absence of M&A, it sees revenue growth targets given at the CMD as achievable and therefore overall sees the stock trading at an attractive discount to peers.

Analysts at Canaccord Genuity raised their target price on food wholesaler Kitwave from 345.0p to 390.0p on Monday following the group's acquisition of WestCountry Food.

Canaccord Genuity said Kitwave's acquisition of specialist fresh produce wholesaler WestCountry Food for a total consideration of £29.0m in cash was "highly consistent" with the firm's "successful buy-and-build growth strategy" in what remains "a largely fragmented wholesale market".

The Canadian bank also noted that the addition of WestCountry to the group, Kitwave's twelfth acquisition since 2011 and second since its initial public offering in May 2021, would be immediately earnings enhancing, will enable it to expand its product range to include high-quality fresh produce, and will complement its existing foodservice offering in the South West.

"Management comments that the group continues to trade well and the outlook remains positive despite the ongoing external pressures. With the group due to report October 2022 prelims in late February 2023, there are clearly no changes to our FY22 forecasts. We have updated our FY23E and FY24E forecasts to reflect the impact of the acquisition as well as taking the opportunity to update the shape of our model to reflect higher run rate base revenues offset by higher operating costs and interest with no impact on base underlying PBT. We increase our FY23E group revenue forecast by 10% to £569.1m and adjusted EBITDA by 19% to £36.7m based on circa 11 months of ownership in the current year," said Canaccord.

Analysts at Berenberg lowered their target price on mining giant Anglo American from 3,000.0p to 2,700.0p on Monday, stating the group was taking "hits from every angle".

Berenberg noted that Anglo American's latest investor update on 9 December included downgrades to production guidance across the business that the "severity and longevity" of which had taken both it and the market "somewhat by surprise".

The German bank stated that based on revised production and cost guidance, 2023 consensus earnings per share need to come down by "at least" 5-10%.

"The impact of the estimates on an unchanged price deck, which we are reviewing, places our 2023E EPS circa 23% below current consensus estimates," said Berenberg.

However, moving into 2023, Berenberg said the macro outlook now appears to be "brighter" and reiterated its 'hold' rating on the stock.

"Overall, we view the update as disappointing, and our estimate changes are reflective of this; however, as we have previously stated, we think that the tailwind of investors seeking exposure to the mining sector is likely enough to outweigh the headwinds of weaker operational and cost performance from the miners," said the analysts.