RBC Capital upgrades PensionBee to 'outperform'

(Sharecast News) - RBC Capital Markets upgraded PensionBee on Tuesday to 'outperform' from 'sector perform' as it said it sees a more exciting near-term investment case, having taken a cautious stance on the stock at initiation.

The bank noted that PensionBee shares are down 23% year-to-date and at 2+ year lows, with the stock trading at a discount to wealth platform peers.

"While an unclear US trajectory is likely weighing on sentiment, the UK business continues to collect well and the group boasts sector-leading revenue and organic growth," RBC said.

It also said that marketing investments are depressing EBITDA today, but argued that the group is far from unprofitable, and there are a number of near-term opportunities to further boost operational momentum.

RBC said that having achieved two consecutive years of positive adjusted EBITDA, the company is "clearly capable" of turning a profit.

"While adjusted EBITDA is currently minimal, we believe PBEE's fundamental capacity to generate profits is good. The group currently spends heavily on new customer acquisition, but we estimate that halving the marketing budget could deliver an adjusted EBITDA margin of 17% in FY26 (versus RBCe of 5%)," it said.

"While this would dampen top-line growth somewhat, we still think EBITDA could grow by circa 25% annually over the following two years, implying an FY28 price-to-earnings of 23x.

"We don't propose management pursue this route, as near-term profit gains would come at the cost of longer-term growth. However, we think the valuation currently overlooks the fact that PBEE's low adjusted EBITDA margin is - in part - the result of a strategic choice to invest into a long-term opportunity."

RBC kept its price target at 175p.

At 1608 BST, the shares were up 2.4% at 128.0p.