Broker tips: Babcock, Gaming Realms, Ryanair

(Sharecast News) - RBC Capital Markets has reiterated its 'outperform' rating on Babcock International Group, on the back of a strong outlook for the engineer's marine business. In a note published on Monday, RBC said that Babcock's recent marine investor day had "showcased that guidance is well underpinned, with upside potential, strengthening the conviction in our recent initiation".

"The event marked a narrative shift for shipbuilding to become a key earnings driver."

Guidance is currently for the marine division to reach sales of around £2bn at a 9% margin by the 2030 full year, which RBC said seemed "undemanding".

Babcock has a three-year shipbuilding pipeline of more than £16bn - significantly above RBC's initial £8bn estimate - which the broker noted was "further enhanced by a more than £1bn pipeline for advanced manufacturing".

RBC concluded: "We leave our estimates unchanged but increase our 2028 full-year estimated adjusted earnings per share upside scenario from pipeline opportunities to 9-37% (previously 8-30%). Near-term potential catalysts include contract wins at this week's DSEI conference, shipbuilding wins and the renewal of Future Maritime Support Programme."

Analysts at Canaccord Genuity reiterated their 'buy' rating on Gaming Realms and raised its target price to 67p from 57p on Monday, citing a strong first-half performance and accelerating international momentum.

Canaccord Genuity highlighted 18% revenue growth to £16m in H125, with adjusted underlying earnings up 30% to £7.5m and net cash rising £5.5m to £19.0m. Licensing revenue climbed 22% to £14.1m, driven by six new Slingo titles and 19 additional operator launches. Brand licensing surged to £2.6m from £0.3m, while social publishing dipped 7%.

Despite UK content licensing falling 13% in H1 and 21% in Q2 due to April's staking limit regulations, Canaccord noted a sharp recovery in July and August as new game formats gained traction. Management expects UK revenues to normalise by year-end.

Licensing revenue rose 2% in the first two months of H2, which the Canadian bank deemed satisfactory given FX headwinds and UK regulatory drag.

Canaccord Genuity also said the current CY25E/26E enterprise value/EBITDA multiples of 8.4x/6.8x undervalue the group's growth profile and increasing North American exposure, and that its new target price was based on a rolled-forward CY26E PER of 10x.

Goldman Sachs downgraded Ryanair on Monday to 'neutral' from 'buy' and cut its price target on the stock to €27.5 from €29.5 as it said its investment case on the budget airline going into 2025 was based on two main factors.

Firstly, that the stock would see FY26 earnings per share upgrades largely driven by a larger negative OTA (Online Travel Agents) impact in FY25 than consensus had factored in. Secondly, that there was a high likelihood of the PE re-rating from low levels on the removal of ownership restrictions.

"As these catalysts have largely played out we now have a less differentiated/slightly more cautious earnings view relative to (Bloomberg/Visible Alpha Consensus Data) consensus...while the valuation has normalised from low levels," it said.

GS also said that in terms of estimates, it now sees the outlook as more mixed relative to consensus.

"Looking at FQ2 (upcoming report) we forecast €1.63bn net profit versus consensus of around €1.7bn, while for FY26 overall our forecast is broadly in line around €2.2bn," said Goldman Sachs. "This reflects on the one hand slightly softer fare data for summer than we had previously anticipated coupled with higher SAF (Sustainable Aviation Fuel) costs than we had previously modelled; on the other hand consensus for the winter quarters FQ3+4 looks like a low bar to us, offsetting our slightly lower FQ2 forecast for FY26 overall."