Leading analyst Karl Burns has upgraded Young’s from Hold to Buy, citing the recent decent trading and an “encouraging” outlook for 2015, and saying the stock no longer trades at a significant premium to its peers.
Burns, of Panmure Gordon, said: “As Young’s approaches its year-end (March) we roll our DCF valuation on 12 months, which implies a fair value of 1066p. Combined with recent share price weakness this leads to an upgrade in recommendation from Hold to Buy; 15% potential upside.
“We expect recent trading to have been very strong given the unseasonably cold and snowy March last year compared to this year’s warm and sunny month.
“We therefore view the risk to FY 2014E consensus forecasts of £25.8m PBT as on the upside; our forecast is in line with consensus. In FY 2015E consensus forecasts imply c9% growth in underlying earnings to £28.0m PBT; again our forecast is in line with consensus. Our three-year forecasts imply 9.6% CAGR in EPS.
“The outlook for FY 2015E is also encouraging with a later (hopefully drier) Easter and the football World Cup in June and July. In addition cost inflation appears to be abating with food input cost inflation at its lowest for 40 months. Longer-term we believe the group’s balance sheet (net debt to EBITDA of c2x at end of FY 2015E) can sustain further earnings enhancing acquisitions.
“The stock is no longer trading at a significant premium to the peer group on a CY 2014E adjusted EV/EBITDAR of 11.0x and is at a small discount to Fuller’s on 11.3x. Given the strong run-up in London property prices, the group’s share price seems well underpinned at current levels.”