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(Sharecast News) - Berenberg initiated coverage of Mears and Capita on Wednesday as it took a look at the UK business services sector.
The German bank started Mears at 'buy' with a 550p price target, stating the company was "asset light and highly cash generative", combined with a strong net cash position, which has provided capital allocation opportunities for strategic bolt-on M&A and helped it return surplus cash to shareholders through buybacks.
"In the past two years the company has already purchased over circa 30% of today's market cap," noted Berenberg.
It also started coverage of Capita, with a 'hold' rating and 350p price target, highlighting the "significant" progress new management has made to resurrect the business and drive the turnaround.
"Importantly, we are now approaching the inflection point towards positive free cash flow, driven by material cost savings," it said. "The investment in the tech platform and AI capabilities provides potential upside risk; however, we initiate at hold and await de-risking of the FCF inflection and AI investment to come to fruition before becoming more constructive."
Berenberg noted that given its recent strong share price performance, it thinks the risk/reward at 8.2x FY1 price-to-earnings was balanced at this juncture.
Analysts at Canaccord Genuity initiated coverage of building products supplier Brickability on Wednesday with a 'buy' rating and a 106p target price, arguing that the market was undervaluing the group's growing exposure to high-margin, regulatory-led verticals.
Canaccord Genuity said Brickability has been diversifying at scale into fire remediation contracting and renewable technology installations, both of which were benefiting from structural demand and limited competition.
The Canadian broker said these segments now contribute 44% of FY25 trading underlying earnings, up from just 7% in FY22, materially improving the mix and resilience of group profits.
Canaccord said the shares, trading on a CY26E price-to-earnings ratio of just 6.2x, appear to reflect a perception of Brickability as a low-margin, asset-light distributor exposed to a soft construction market.
"We disagree," the broker said, describing the group as a "sustainable compounder" with a solid balance sheet and sticky customer relationships.
"We think Brickability should be valued at least on par with listed peers. Our multiples-based approach applied to CY26E estimates suggests the shares can almost double from current levels," added Canaccord.
Citi opened a 30-day 'positive catalyst watch' on Flutter Entertainment on Wednesday ahead of its third-quarter results on 12 November.
"While US NFL results in September were customer-friendly, we believe this has been well understood by the market, whereas the ability for Flutter to continue to leverage its cost base, and the US bookmaker friendly results in July and August are perhaps not as well captured in forecasts," it said.
"As a result, although we slightly reduce our FY25e revenue/adjusted EBITDA forecasts by -1%/-3%, we are 17% ahead of Visible Alpha consensus for 3Q25e on group adjusted EBITDA (3% annualised) driven by the US and given lower opex expectations (+1% versus Visible Alpha consensus on group revenue)."
Citi maintained its 'buy' rating on the stock.