Broker tips: Aston Martin, Renewi

(Sharecast News) - Goldman Sachs upgraded its stance on Aston Martin Lagonda on Wednesday to 'buy' from 'neutral' as it argued that new products pave the way for a turnaround in fortunes. The bank said it was upgrading the shares "ahead of a 24-month period during which we expect steady progress".

Through to the end of 2024, Goldman expects Aston Martin to unveil one new core model every quarter, creating an unprecedented pipeline.

"Over the same period, new specials should help to bolster higher average selling prices, gross margins and ultimately EBITDA," it said.

GS expects the luxury car maker to deliver 2H23 adjusted EBITDA of €244mn, a run-rate close to AML's €500mn 2024/25 target.

"As AML introduces its next-generation products, we forecast a step forward in ASPs and gross margins," GS said.

"We believe solid initial sales of core models and the contribution from specials provide a degree of certainty over AML's 2024 financials, and 'an option' on medium-term success.

"However, for greater conviction that AML can achieve ASPs and margins consummate with the luxury peer group on a sustained basis, we believe it is necessary to assess waitlists, ASPs and volumes more than 12 months after new products launch."

Goldman noted that despite the year-to-date performance, AML shares are down 37% since the start of 2022.

"We do not believe the share price gives full credit to AML meeting its near-term (2024/25) targets," it said.

"On average, we see AML reaching these targets with £2.1bn in revenue and £515mn of adjusted EBITDA."

Elsewhere, Berenberg initiated coverage of recycling and waste management services company Renewi with a 'buy' rating and 710p price target.

The bank said Renewi currently exhibits a depressed valuation, given a combination of legacy issues and concerns about its near-term forecasts due to recent tailwinds from elevated recyclate and commodity prices.

"We think these concerns are overdone and the company offers a material re-rating opportunity for patient investors," it said.

It added that Renewi has highly attractive medium-term drivers, as well as near-term strategies to boost profits - offsetting pricing headwinds - and should achieve a material step-up in cash generation over the next couple of years as legacy headwinds unwind.

Berenberg said the core Renewi story is "simple".

"We believe that recycling volumes should be positive over the medium term, with tailwinds from GDP growth, increased regulation and societal pressures for greater recycling rates, offsetting trends for more reusable materials," it said.

"Structural growth in demand for recycled materials should then be supportive for prices, leaving a growing business over the medium term. Renewi will stay at the forefront of this industry, we think, given its leading position in two of the most advanced European recycling markets and its history of innovations, investments and attractive rates of return.

"Owing to all of this, combined with a step-up in growth capex, we believe that 5% annual organic growth should be achievable."