Broker tips: Future, Melrose Industries

(Sharecast News) - Berenberg upgraded Future on Tuesday to 'buy' from 'hold' and hiked the price target to 1,310p from 850p following "positive" first-half results, which indicated that organic growth has troughed. The upgrade was also due to positive commentary from US peers regarding Q1 advertising trends, Google's decision to delay third-party cookie deprecation and evidence that AI-enabled search will likely benefit market leaders but Berenberg said the most important catalyst for Future was a return to organic growth within its media division.

"Future's H1 results (released on 16 May) indicated that organic growth for the division troughed in H223," it said. "Online audience figures, a leading indicator of revenue growth, also look to have stabilised, particularly in core categories such as technology and gaming (54% of web users).

"Our analysis indicates that Future needs to deliver 4% revenue growth in H2 in digital advertising and e-commerce to reach consensus. We think that this is achievable given the easy comparable, the fact that Future's US digital advertising returned to growth in Q2, and Q1 commentary from peers such as Dotdash Meridith, Ziff Davies and Meta, which has noted improving advertising yields in the US."

Berenberg noted that the shares trade on a FY24 price-to-earnings of 9x, which it thinks is attractive given that we could be at the start of an upgrade cycle and bearing in mind chief executive Jon Steinberg's comments regarding portfolio optimisation.

Melrose Industries rallied on Tuesday as Stifel lifted its price target on the shares to 700p from 690p and upped its profit forecast.

Stifel, which kept its 'buy' rating on the shares, said they have lagged the company's Aero engine peers over recent weeks, partly due to the perceived overhang of the LTIP crystallisation and the consequent issue of stock to former and current management.

"With the group now opting to cash-settle the portion of the payout required to fund tax costs, and some of the remaining shares subject to lock-up, dilution is less than we had anticipated, and there seems little risk of material flowback," Stifel said.

"Meanwhile, the Q1 trading update, and commentary from peers, suggests that trading remains robust, with strong demand for high-margin Aero aftermarket parts and services, through RRSPs and direct."

Stifel raised its headline profit forecast for the year by around £11m and reduced its estimated average shares in issue. In combination these two changes increase its estimated 2024 earnings per share by around 2%.