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Broker tips: Strix Group, Aviva

Wed 07 April 2021 14:50 | A A A

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No news or research item is a personal recommendation to deal. Hargreaves Lansdown may not share ShareCast's (powered by Digital Look) views.

(Sharecast News) - Analysts at Berenberg initiated coverage on kettle safety manufacturer Strix Group at 'buy' on Wednesday, branding the stock as "a strong cup of tea".

Berenberg said with a well established and large market share, sector-leading operating margins and "exceptionally high" returns, it thinks Strix has "many attractive characteristics", especially with the company now "rapidly expanding" into adjacent markets - water filtration and other small domestic appliances - which should add substantial scale in the coming years.

The German bank also believes Strix has strong environmental, social and corporate governance credentials, which it said were "arguably currently overlooked" by investors.

"Considering we believe Strix can double revenues on a five-year view, shares appear significantly undervalued at 17x FY 2022 price-to-earnings ratio," said Berenberg, which started the stock off with a 330.0p target price.

"At a 37% discount to peers, we believe shares are mispriced and believe there is a material rerating opportunity as the group delivers its growth ambitions and the ESG story evolves."

Analysts at JP Morgan restarted their coverage of Aviva at 'overweight' after the firm successfully completed its disposal programme, which led them to bump up their estimates for the life insurer's earnings per share performance and share buybacks.

The firm was proceeding rapidly with its restructuring and had now sold its operations in Europe and Asia, said JPM, which added that in the case of Aviva's Polish business, the sales price had in fact come in ahead of their forecasts.

As a result, JP Morgan raised its projection for share buybacks from £3.0bn to £4.0bn.

However, the analysts continued to anticipate a Solvency II ratio for Aviva of approximately 200% "to maintain some buffer and room for modelling error."

JPM also raised its earnings per share estimates for Aviva over 2021-23 by 1%, 8% and 8%, respectively, and its end-2020 target price by 8% to 510.0p

When it comes to dividends, on JP Morgan's latest estimates Aviva shares would be changing hands on an anticipated 2023 pro-forma free-cash-flow yield of more than 10%, which they termed "attractive". For 2021, the dividend yield was pegged at 5.3%, rising to 7% in 2023, yet its shares were trading on an estimated 2023 price-to-earnings multiple of less than eight.

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