Canaccord Genuity lowers target price on Kooth

(Sharecast News) - Canaccord Genuity lowered its target price on mental health services provider Kooth from 430p to 330p on Wednesday, but said the stock still represents a "buying opportunity". Canaccord stated Kooth shares have "underperformed materially" over the last 18 months due to uncertainty around the July 2027 renewal of a major contract in California, as well as subdued growth in the UK.

The Canadian bank noted that with the valuation at historic lows of 0.3x FY26E enterprise value/sales and 4.6x EV/EBIT, its deep dive suggested "strong upside from here".

On a standalone basis, Canaccord estimates Kooth's UK and US business, except California, to be worth roughly 125p, broadly in line with the current share price. With net cash making up another 60p per share, the analysts believe the current valuation already bakes in their zero or negative value for California.

"We view this as unwarranted, as our scenario analysis suggests renewal at ~30-50% lower revenues could deliver annualised cash EBITDA of $3-4m, in line with our estimate for the current contract run rate of $4m," said Canaccord.

In the unlikely event that California does not renew, our SOTP indicates upside to 225p in 2027. Following today's trading update, we reduce estimates but expect a return to profit and earnings growth as investments taper. We believe the current valuation materially undervalues the business and reiterate 'buy' with our target reduced to 330p but offering >160% upside potential."

Reporting by Iain Gilbert at Sharecast.com