Broker tips: Abcam, Direct Line, IWG

(Sharecast News) - Analysts at RBC Capital Markets lowered their target price on protein research tools producer Abcam from 1,950.0p to 1,700.0p on Tuesday in order to better reflect share price movements at competitors. RBC said industry commentary as a whole was largely positive, except in China, noting that relevant commentary from many of its life science tools peers indicated that the academic funding environment remained "good", with most companies not seeing issues around biopharma funding either. However, in China, the first quarter of the year did see an impact from lockdowns, something that was also expected to weigh on Q2.

The Canadian bank stated it was updating its model on Abcam following its full-year results in March, recent FX tailwinds, and the Chinese lockdowns, with its revenue forecasts now 2-3% higher, almost entirely due to FX, with higher initial underlying growth expectations tempered by lower expectations for its operations in China in the first half.

RBC also noted that EPS changes range from -1% to +3% for 2022-2024E. However, it said a change in accounting to remove share-based payments from underlying earnings meant that the nominal change was actually much greater at approximately 15-19%.

Deutsche Bank downgraded Direct Line on Tuesday to 'hold' from 'buy' and cut its price target on the stock to 300.0p from 335.0p as it noted the shares were currently trading close to a valuation low at a 10.1% 2023 estimated dividend yield.

"Despite the valuation, we don't think this is enough to remain positive on the shares," it said. "In our view, a re-rating is dependent on when the market believes top-line (and thus bottom-line) momentum will inflect, which we don't think will occur for up to six months."

Deutsche said this is based on its view that it could take the market over three months to begin to price in claims inflation, and longer than that for Direct Line to see a volume uplift.

"Reflecting this and the lack of an immediate catalyst, we no longer have conviction in our buy, and as such downgrade our recommendation to a hold," it said.

Berenberg upgraded shares of serviced office provider IWG on Tuesday to 'buy' from 'hold' as it highlighted a "clear value opportunity".

The bank said IWG was a difficult business to analyse, given that its earnings were "volatile" due to a high fixed cost base and significantly more variable revenues from customers on short-term contracts. It also invests materially in its P&L each year, meaning that traditional earnings multiples can be misleading.

"Its disclosure and accounting are frustratingly complicated. Further, the company has a range of strategic initiatives that could create meaningful upside over the long term and are therefore difficult to value today. Due to these complications, we believe that significant opportunity can come when the market overreacts to near-term disappointments."

Berenberg said the current share price offers one such opportunity, and that IWG's shares will materially appreciate over the coming 24 months. It pointed out that the shares had fallen by 37% since its downgrade to 'hold' in March 2021.

Berenberg kept its price target on the stock at 310.0p.