Broker tips: Drax, Intertek, 1Spatial, Aberdeen

(Sharecast News) - Jefferies resumed coverage of Drax on Monday with a 'buy' rating and 750p price target, saying it was "resilient" amid uncertainty. Following FY24 results and the agreement of heads of terms with the UK government on a biomass bridging mechanism, Jefferies updated its model and said it sees increased post-2027 earnings visibility. The bank estimated more than £600.0m of EBITDA for 2027 and beyond, where the new datapoint since its last update in December 2024 was the established contribution from biomass generation where Drax expects around £100.0m-200.0m of EBITDA over the period of the bridging mechanism.

"Following our refresh, our FY25-27 EBITDA/EPS estimates are 2%/5% above Visible Alpha consensus," said Jefferies, which also noted that it sees a limited impact on Drax in the case of zonal pricing being introduced.

"Our understanding is that the potential introduction of zonal pricing to the UK will have little material impact on Drax's revenue streams," it said. "Where there may be some positive exposure is on Drax's OCGT plants, which are due to be commissioned in 2025," said the analysts. "These assets are located in the south of the UK, where prices/margins might increase under zonal pricing.

The bank also said in the note that it sees upside on Drax from the potential increase in the buyback programme, on top of the current £300.0m programme. It noted that Drax secured permission at the May annual general meeting to go ahead with additional buybacks, equivalent to around 10% of shares outstanding as of March 2025. This is underpinned by a robust balance sheet, it added.

Berenberg has cut its target price for Intertek from 6,000p to 5,700p but kept a 'buy' rating on the testing and laboratories firm, saying the business is showing "solid growth through macro weakness".

A trading update from the company last month revealed that organic growth was slower than expected in the first quarter, mainly due to the performance of its Caleb Brett business, which is exposed to global fuel trade volumes, particularly oil.

However, the slowdown will likely only be temporary, Berenberg thinkg, with industry forecasts pointing to an increase in crude oil volumes over the year.

Elsewhere, growth in Intertek's Industry and Infrastructure markets is expected to accelerate due to improvements in building and construction, while there are no signs of weakness in the consumer products sector.

"We think that Intertek is the most cyclical of the testing, inspection and certification companies that we cover, given its more material reliance on trade volumes than its peers," said analyst Carl Raynsford. "While we reduce our growth expectations for FY25 due to a softer Q1, we still think that the company can achieve over 5% organic growth this year, with the major headwind coming from FX."

Analysts at Canaccord Genuity lowered their target price on IT service management company 1Spatial from 105.0p to 95.0p on Monday following the group's recent preliminary earnings report.

Canaccord Genuity noted that 1Spatial's interim earnings had confirmed revenue of £33.4m, up 3% year-on-year, with software & SaaS sales increasing 35% to £11.5m and recurring revenues growing to 62% of total revenue, up from 56% in FY24. Service revenues, on the other hand, declined by -9% due to procurement delays.

In terms of profit, Canaccord noted that inflationary cost pressures and increased amortisation charges from recent platform R&D resulted in adjusted underlying earnings of £1.4m, down 32% year-on-year.

Despite this, the Canadian bank stated that 1Spatial's outlook offered "cautious optimism", with FY26 starting well as the group secured its third significant contract for 1Streetworks worth £500,000 with Kent County Council and a had a number of proof of concepts ongoing.

"However, management remains cognisant of persisting macro uncertainties and subsequent procurement delays. As such, we update our FY26 forecasts, modeling yoy sales growth of 9%. Whilst this is undoubtedly a more subdued short-term outlook, we are encouraged by ARR growth (+14% to £19.7m), which indicates strength in demand for its software portfolio (evidenced in consistent renewals at 93%), and provides 54% coverage of our FY26E sales estimate," said Canaccord Genuity, which kept its 'buy' rating on the stock.

Goldman Sachs upgraded Aberdeen on Monday to 'buy' from 'neutral' as it noted that the recent investor focus has centred disproportionately on the underperforming asset management unit.

The bank said Aberdeen's shares have delivered relatively disappointing returns over the past three years, falling around 12% versus the Stoxx Europe 600 financial services index's 36% gain.

"Through this period the group has faced significant challenges within its asset management business (the 'Investments' segment), which has had to navigate high-margin outflows and eroding profitability," it said.

"In this context, GS believe the market has been disproportionately focused on the headwinds within this unit and the execution risk surrounding a medium-term turnaround, largely overlooking the value of the high-performing, Interactive Investor business (known as ii), Aberdeen's D2C investment platform."