Broker tips: Wilmington, Compass, Shawbrook

(Sharecast News) - Analysts at Berenberg raised their target price on Wilmington from 460p to 485p on Monday after the information services provider announced it had received Foreign Direct Investment clearance from the Spanish regulator for its €121.6m acquisition of a regulatory technology software business Conversia. Berenberg noted that the clearance leads to a completion date in line with the deal's original timetable and confirms that Conversia will make about a seven-month contribution to Wilmington's FY26 results.

"We update forecasts today for the effects of the deal, leading to an 8% upgrade to our FY27 EPS forecast in Conversia's first full year in the group. This results in an EPS CAGR of 10.1% from FY25 to FY27 and drives a rise in our price target to 485p (from 460p), offering material upside of 61% to the current share price," said Berenberg.

The German bank, which reiterated its 'buy' rating on the stock, sees "a clear mispricing in the shares at present", currently trading on a 10.8x FY27 price-to-earnings ratio on its newly upgraded forecasts.

"This contrasts with Wilmington's high earnings quality (c70% recurring), healthy EBIT margins (nearing 24%), re-emerging organic and acquisitive growth and a dividend yield now exceeding 4%," added Berenberg.

Following the announcement of the regulatory clearance, a later update confirmed that Wilmington's chief executive and chair had purchased a combined 18,315 shares at prices ranging from 298p to 302p, something it views as "a sign of their confidence" in Wilmington's outlook and current undervaluation.

RBC Capital Markets upgraded Compass Group on Monday to 'outperform' from 'sector perform' and lifted the price target to 2,775p from 2,700p.

It said the stock's relative performance pullback creates a good entry point for "a high-quality compounder" with less than 15% share of its total addressable market and significant advantages over the majority of direct and indirect competitors.

"We see swirling concerns around consumer spending pressures, AI disruption and the impact of GLP-1s as overdone and note the forward 12m price-to-earnings has fallen back in line with the adjusted 10-year average, putting the stock firmly into GARP territory," RBC said.

The Canadian bank also said the shares looks cheap versus comparable US Services compounders, bearing in mind that Compass generates almost 80% of EBIT in North America.

The recent rally in Shawbrook's stock has further to run, according to Shore Capital, which initiated coverage of the banking group with a 'buy' rating on Monday.

Shawbrook returned to public markets on 30 October, and had experienced some selling pressure until mid-November, before jumping more than 16% over the past six sessions. As a result, it has gained over 8% since its IPO, helped by a 2.3% gain to 426.8p by midday Monday.

Shore Capital, however, has a fair value estimate on the stock of 475p, implying 14% upside from Friday's closing price, as the broker highlighted the business's "significant growth potential".

Since 2017, when Shawbrook was taken private, the company has grown its net loan book by 3.5 times to around £17bn by the first half of this year. Management, however, want this to increase to around £30bn by 2030.

"If the group can deliver on this target and sustain a high-teens underlying return on tangible equity, as planned, then it could see earnings grow to 90-100p in due course," Shore Capital said. "While this goal may appear ambitious in a relatively low growth UK economy, the group has access to a large and growing total addressable market where it is also taking share."

The broker estimates that Shawbrook's total addressable market is roughly £300bn - a market that is also growing.

Meanwhile, potential bolt-on acquisitions could also add to the company's potential, Shore Capital said, with the company having a "decent track record of adding capability through M&A".