Broker tips: WPP, Zegona Communications

(Sharecast News) - Analysts at Citi reiterated their 'buy' recommendation for shares of WPP on Wednesday, citing easier comparables as they deemed the stock's valuation "overly cheap". In a research note sent to clients ahead of the group's first-quarter results, Citi estimated that WPP's organic net revenues were set to grow by 2.2% in the first three months of the year - less than the 2.3% as per the VA consensus and their own estimates for 3-5% growth for the full-year.

Citi reckons revenue growth would need to accelerate over the remainder of the year, but said it was not "unduly concerned", although that did ratchet up the relative risk profile "slightly".

"We think the starting point in terms of assumptions is adequately conservative, we note the group's track record of delivering consistent beats versus expectations (on average this has been circa 200 basis points based on 2019-2022) and we acknowledge the improving comp profile through the year, particularly in China/RoW," they said.

Furthermore, changing hands at 9.1x the forwards price-to-earnings multiple and with a free cash flow yield of over 10% on offer, Citi stated the shares were "overly cheap".

Analysts at Canaccord Genuity slashed their target price on telecommunications investor Zegona Communications from 130.0p to 80.0p on Wednesday as it said the group was "gearing up for the next deal".

Canaccord Genuity said following 2021's successful Euskaltel stake disposal and return of proceeds to shareholders, Zegona's recent annual results led it to upgrade its forecasts. In its results, management guided to an annual opex/loss run-rate of roughly €3.0m, 10% below last year, to fund listing expenses and salaries of the team.

The Canadian bank also said Zegona's "highly experienced investment team" was continuing to screen the European telecom landscape for the next "fixer-upper" M&A deal, with outlook commentary suggesting that both the supply of M&A targets and the telecom debt funding environment had improved in recent months.

"At 54.0p the stock trades at a ~33% discount to our risk-adjusted end-2023 book value forecast of 80.0p. We are conscious of the low trading liquidity of the shares and operating losses until a new deal is consummated, but continue to see upside optionality ahead of a potential deal-related equity raise. Our new 80.0p target (down from 130.0p) implies close to 50% upside," said Canaccord, which stood by its 'buy' rating on the stock.