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Broker tips: Croda, K3 Capital, TI Fluid Systems, Spirax-Sarco Engineering

Thu 08 July 2021 14:50 | A A A

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(Sharecast News) - HSBC upgraded Croda to 'buy' from 'hold' on Thursday and hiked its price target on the stock to 8,600.0p from 6,100.0p as it argued that the specialty chemicals group's strong near-term trading environment should continue to support the recent re-rating.

The bank said it had detected a transformation that could accelerate long-term growth at the company and should help revenue growth, margins and cash flows.

"We detect that Croda is changing. The major vaccine success is a clear and growing boost to Life Sciences, while the successful integration of fragrances, a strategic review of Performance Technologies and recovery in consumer markets - combined with its ESG credentials defined by ongoing sustainability - suggest an accelerating internal momentum," it said.

It added that the success in supplying lipid nanoparticles for Pfizer's messenger RNA-based Covid-vaccine is now well documented.

"There is the possibility of an increase in the size of the uptake as Pfizer has been raising its own production target (Pfizer estimates 3.0bn doses will be manufactured in 2021 vs the earlier 1.6bn it released in mid-May).

"However, this should not disguise the underlying success in growing customer demand for its range of adjuvants, excipients and broader medical uses in areas such as oncology treatments and further vaccine work."

Analysts at Canaccord Genuity raised their target price on professional services business K3 Capital from 398.0p to 452.0p on Thursday after the firm made a number of accretive acquisitions.

K3 Capital recently completed an equity fundraising of £10.0m and issued £3.1m consideration shares at a price of 340.0p in order to fund the acquisitions of Knight Corporate Finance and Knight R&D.

Canaccord, which reiterated its 'buy' rating on the stock, said both businesses were "high-growth, high-margin businesses" which complemented K3's existing M&A and tax offerings, respectively.

"Based on conservative growth assumptions, we estimate that the combined acquisitions should be 13.4% and 13.5% earnings enhancing in FY22E (assuming an 11-month contribution) and FY23E, respectively (K3 has a May y/e)," said Canaccord.

"In our view, these proposed acquisitions are consistent with K3's strategy to build a diversified SME-focussed professional services offering, by acquiring immediately earnings enhancing targets at attractive multiples."

Numis downgraded TI Fluid Systems to 'add' from 'buy' on Thursday, while Spirax-Sarco Engineering was cut to 'hold' from 'add' as it took a look at the capital goods sector.

On TI Fluid, it said: "Although we see longer-term outperformance versus global light vehicle production, as the group continues to win content on new electric vehicle platforms, we see near-term risk to forecasts due to volatility in light vehicle production."

Numis cut its price target on the shares to 350.0p from 370.0p and reduced its FY2021 and FY2022 earnings per share forecasts by 11% and 7%, respectively. The broker noted that the shares are up more than 30% year-to-date and almost 70% from the beginning of November and said they are now largely discounting the post-pandemic recovery.

In the same note, it attributed its downgrade of Spirax-Sarco purely to valuation and the recent strong performance, as it maintained its 14,000.0p price target.

"We anticipate a robust first half performance, driven by the sharp rebound in global industrial production activity and strong demand for Watson-Marlow from the BioPharm sector," it said. "We are also confident that the group has successfully navigated the global supply chain disruption and input cost inflation."

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