Broker tips: Volution, Nexteq

(Sharecast News) - Over at Berenberg, analysts hiked their target price on ventilation equipment business Volution to 600.0p from 500.0p on Wednesday following the group's full-year trading update. Berenberg stated that while the macro backdrop has "remained challenging" given subdued levels of new construction activity, high interest rates and weak consumer confidence, Volution has continued to be "resilient", with management confident about the brands and strategy.

Overall revenue for FY24 was up by 7% year-on-year in constant currency terms, of which slightly over 1% was organic growth.

As the German bank flagged back in March, key focus points were the strength of the outperformance in Volution's UK residential division, a resilient performance in Europe given the market weakness, further delivery of strong adjusted underlying earnings margins, and very clean cash conversion that leaves the business at 0.5x EBITDA pre-leases and well positioned for future consolidation.

"With the company guiding to a 'slight' increase in adjusted earnings per share versus prevailing consensus expectations, we increase our FY24 numbers by circa 1.5%," said Berenberg, which has a 'buy' rating on the stock.

"As such, with Volution shares also performing well and recently breaking through our prevailing 500,0p price target, we have increased our price target to 600.0p to reflect this change in peer multiples, and our ongoing confidence both in the company's strategy and its ability to participate in the expected recovery in end-market demand."

Analysts at Canaccord Genuity lowered their target price on B2B technology group Nexteq from 300.0p to 200.0p on Wednesday despite "strong margins and cash", noting that destocking persisted.

Canaccord said revenue for H124 was expected to be $48.2m, down 15% year-on-year, reflecting soft demand across both its Quixant and Densitron offerings as a result of persistent destocking, in line with wider industry trends.

The Canadian bank also said the impact has been amplified by some larger customers deciding to delay planned product launches and instead sweat assets for longer given a challenging macro backdrop.

"We have updated our model to reflect the new guidance. This sees our FY24E adjusted pre-tax profit reduce by 36% to $9.6m. We now see net cash 7% better at $38.0m. For FY25, the timing of planned customer spending remains uncertain at present, but we expect strong margins and a continued focus on cost management to at least maintain profit levels. We reduce FY25E adjusted PBT by 42% to $9.7m as a result," said Canaccord, which has a 'buy' rating on the stock.

"On our revised estimates, Nexteq trades on a P/E of 13.9x for 2024E falling to 13.7x for 2025E. P/E ex cash is 8.6x/8.0x respectively with net cash representing ~38% of current market capitalisation. That looks too cheap for us given the strength of gross margins and underlying cash generation, while absolute profit levels are likely to rebuild quickly, in our view, as cyclical destocking trends ease."