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Broker snap: Connaught undervalued

Social housing firm Connaught has denied press speculation about a bid but Panmure Gordon is not surprised at the bid speculation as the 'business is attractive'.

Panmure Gordon indulged in a spot of speculation of its own, postulating that Enterprise, now part of 3i, may have been the company that the market was putting in the frame as a bidder for Connaught. Though Connaught appears 'relatively undervalued' on a calendarised 2010 price/earnings ratio of 10, 'despite displaying double digit growth and good earnings visibility,' the broker does not think Connaught's blue-collar outsourcing profile would make a good fit.

The shares have been under a cloud since the departure of chief executive officer (CEO) Mark Davies, who left at the end of January, with concerns over contracts adding to the gloom.

'Connaught management this week gave a presentation to the Panmure Gordon Sales team. We felt it to be robust. It confirmed our view that the departure of the CEO does not impact strategy, that the concerns over the Norwich Contract had been overdone,' the broker said.

The broker has retained its 'buy' recommendation and 470p target price.

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