Canaccord Genuity lifts Zoo Digital target price as recovery gathers pace

(Sharecast News) - Canaccord Genuity raised its target price on Zoo Digital to 31p from 22p on Tuesday and reiterated its 'buy' recommendation on the stock after first-half results pointed to an accelerating recovery in trading and profitability.

The Canadian bank said the media localisation specialist had emerged from a difficult period with a leaner cost base, broader customer relationships and a stronger competitive position, supported by AI-enabled workflows and faster project turnaround times.

Zoo reported H1 revenues of $23.6m, up 6% year-on-year, while adjusted underlying earnings jumped 79% to $3.6m. The group also returned to operating profitability, posting operating profits of $1.5m, compared with a loss of $1.2m a year earlier.

Canaccord highlighted particularly strong momentum outside Zoo's largest customer, whose contribution halved to $6.1m. Excluding that customer, revenues across the remainder of the business increased 72%, reflecting growing demand from major global streaming platforms.

The analysts also pointed to a strong recovery in localisation revenues, which rose 46% to $16.7m and more than offset weaker media services revenues.

Looking ahead, Canaccord said current trading remained encouraging, tender activity was at its highest level since before the Hollywood strikes and the pipeline of original content was beginning to recover. It also noted that Zoo's ability to deliver large, multi-language projects at speed was becoming an increasingly important differentiator.

As a result, the broker believes consensus forecasts could prove conservative and sees increasing upside risk to earnings expectations.

Reporting by Iain Gilbert at Sharecast.com