Broker tips: WPP, Darktrace, TI Fluid Systems

(Sharecast News) - Analysts at Berenberg lowered their target price on media giant WPP from 915.0p to 864.0p on Friday after the group's Q3 growth was "softer than the whisper". Berenberg noted that while WPP-compiled consensus was for 3.1% like-for-like growth in the third quarter, an alternative consensus had risen to 3.5% as it came closer to results time.

"We think this reflects rising expectations following the well-above-forecast results for the other agencies. Thus growth of 3.8%, while officially above expectations, probably fell a bit below what some had hoped for," said Berenberg, which reiterated its 'hold' rating on the stock.

The German bank admitted that it was true that WPP had "tougher comparables" than its peers, given a large Covid-19-related contract win in Q3 2021, but it said the "reality" was that, when looking at the numbers on a three-year stack versus pre-Covid-19 levels, the group continues to "lag" IPG and Publicis.

"In many ways, we think WPP is paying the price for its strategy under previous management. It is behind Publicis on the integration side, having operated as a disparate set of assets in the past (many of which would compete against each other). The restructuring - which aims to undo this - began only under Mark Read. Equally, the lower exposure to digital transformation may reflect a) the more traditional approach of previous management, and b) the fact that the company was overly leveraged when Mark Read took over, and thus had to focus on selling assets rather than scaling up in business transformation via acquisition, as Publicis has done," said Berenberg.

Numis initiated coverage of Darktrace on Friday with a 'buy' rating and 520.0p price target.

It said that while the company remains the target of a high degree of scepticism, this is misplaced.

"The group's innovative product set provides a significant additional layer of security, with a very large market opportunity," the broker said. "One new piece of analysis that has not previously been published elsewhere is a comparison of the cost of growth for Darktrace with other leading subscription cyber companies.

Numis thinks risk to consensus forecasts remains on the upside, with consensus expectations implicitly assuming a significant deterioration in the efficiency of the group's growth.

It added that Darktrace's valuation (3.7x CY23 EV/sales) is a circa 40% discount to the global peer group, taking into account its growth rate.

Analysts at Deutsche Bank lowered their target price on manufacturer TI Fluid Systems from 180.0p to 220.0p on Friday following a "slight miss" on Q3 earnings and guidance that came in below market expectations.

Deutsche Bank said TI Fluid Systems had reported "somewhat soft" Q3 results, with a miss on the top line versus its estimates and an "implicit guidance cut"

"We see consensus numbers moving down on the back of the print," warned Deutsche, which stood by its 'hold' rating on the stock.

With that said, DB also noted that it already sits at the new underlying earnings margin guide for the full year.

"Following Q2, cost inflation recovery with customers remains a key point of discussion, and looking ahead there is likely more to be done as energy and wage inflation bite," said the German bank. "As a result, we factor in headwinds into 2023 as well as macro uncertainty and adjust our TP to 180.0p."