Broker tips: Stagecoach, Synthomer, Molten Ventures

(Sharecast News) - Analysts at Liberum downgraded public transport operator Stagecoach from 'buy' to 'hold' on Thursday but stated yesterday's 105.0p cash offer provided some "short-term certainty". Stagecoach has recommended an all-cash takeover offer from an infrastructure fund managed by DWS Infrastructure at a 37% premium to its prior closing price and 51% above the look-through price of an all-share offer from National Express. As a result, Stagecoach withdrew its recommendation for the National Express offer.

While Liberum said it views the implied multiples as "underwhelming", it thinks the terms do offer "a material premium" to the terms of the alternative National Express offer, as well as the certainty of cash, lower execution risk and faster completion.

Stagecoach co-founder Ann Gloag, who holds a 10.5% stake in the firm, has given an irrevocable undertaking to accept the cash offer, while Threadneedle, which owns 16.98% of the firm, has given a non-binding letter of intent to accept and directors, who control 14.6% of the company, were still bound by their previous irrevocable undertaking to accept the National Express offer.

"In the current equity market environment we suspect that shareholders will find a 105.0p cash offer acceptable. Given the share price has risen to this level, we cut our target price to 105.0p from 131.0p to match the offer and downgrade our recommendation to 'hold' from 'buy'," concluded the analysts.

Analysts at Canaccord Genuity slashed their target price on chemicals business Synthomer from 750.0p to 575.0p on Thursday, stating trading now appeared to be normalising.

Canaccord Genuity said Synthomer's latest set of full-year results were in line with previous expectations, confirming that excess profits earned in its nitrile business through 2020-21 were now "firmly over".

However, it noted that the rest of the business had seen "impressively stable profitability", which it expects to continue into 2022.

"We are revising forecasts materially to reflect the end of the nitrile boom, and taking, as a result, a somewhat more cautious view on valuation," said the analysts. "Nonetheless, we continue to struggle to justify the apparent multiples on Synthomer; at our new target, the stock would trade at just 10x/9x 2022E/23E EV/EBITDA, which we believe is highly attractive for a business with this level of consistency."

In particular, the Canadian bank noted that following Synthomer's acquisition of Eastman adhesives assets and Omnova, around 65% of the group's underlying earnings come from other "structurally growing specialty chemicals businesses", up from around 45% before the deals.

Despite the price target downgrade, Canaccord reiterated its existing 'buy' rating with the new target price.

Jefferies upgraded Molten Ventures, formerly known as Draper Esprit, to 'buy' from 'hold' on Thursday.

The bank said Molten's update on Wednesday reiterating guidance for a year-end fair value uplift of 35% implies a 1,000.0p a share net asset value, up from 743p at the end of March last year.

"This is supported by a £76m uplift in FV of Molten Venture's holding in one portfolio company announced today, which is equivalent to 50p/share on its own, or 19% of the expected uplift," said Jefferies. This close to year-end, we adjust our FV forecast and change our rating to buy, cognizant that this is a 12-month view."

Jefferies, which reiterated its 1,000.0p target price on the stock, said its view of the market's appetite to discount or pay a premium for Molten's portfolio is that it tends to swing.

"Although the depths of the spring 2020 discount are still below the current point, the recovery was sharp. There has been rotation from growth to value, but continued revenue growth at portfolio companies demonstrates progress towards profitability, and there are clearly still buyers who will take GROW's portfolio companies on further," said the analysts. "At such a steep discount to NAV, and with such a demonstration of confidence in value at a time of uncertainty, we go from holders to buyers."