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18 Jan 2021 | 15:05

Broker tips: Paragon, Chemring, Blue Prism

(Sharecast News) - Analysts at Canaccord Genuity hiked their target price on diversified financials group Paragon from 454.0p to 548.0p on Monday, pointing to the company's "exemplary track record" in terms of asset quality and operating performance throughout economic cycles. Canaccord, which also reiterated its 'buy' rating on the stock, stated Paragon's 2020 full-year results were illustrative of its historical performance and said while economic uncertainty remained "in the short term", it believes its outer year forecasts could be conservative in terms of new lending and net interest margin.

"Our previous forecasts were very cautiously struck under a severe economic scenario, which to date has not materialised due to ongoing government support measures for individuals and businesses," said the analysts, who upgraded their earnings per share forecasts for Paragon by 18% and 9% in 2021 and 2022, respectively.

The Canadian broker highlighted potential upside risk to its outer year return on tangible equity forecast of 12.4%, noting that Paragon's medium-term target remained 15%.

Barclays upgraded its stance on Chemring on Monday to 'overweight' from 'equalweight' and hiked the price target to 380.0p from 250.0p, saying it's the purest-play cyber exposure in its UK defence coverage.

It noted that Roke Manor currently represents 18% of FY20 revenues, 80% of which are cybersecurity versus the EU defence average of less than 10%, providing high end active cyber, cryptography, information warfare and consultancy.

"In our view, the business is well positioned competitively and it generates market-leading margins (around 25% versus peers less than 15%)," Barclays said. "We believe Chemring is the most attractive way to play the cybersecurity growth theme in the UK."

Analysts at Berenberg downgraded software outfit Blue Prism from 'buy' to 'hold' on Monday following the group's 2020 full-year results last week.

Berenberg said Blue Prism's results announcement on 14 January, which included a reduction in revenue guidance, caused the shares to fall by 25% on the day but noted that it feels the circumstances were not as simple as the firm rebasing revenue expectations in the context of ongoing macro uncertainty.

The German bank said Blue Prism's new guidance pointed towards decelerating revenue growth, but with a clearer path towards cash flow breakeven and eventually profitability.

A portion of this can be explained by Covid-19, acknowledged Berenberg, but for the analysts, it also raises questions about the robotic process automation market as a whole, pricing, competition and Blue Prism's commercial strategy.

"Despite its relatively attractive valuation, we downgrade Blue Prism to 'hold' and reduce our price target to 1,375.0p," said Berenberg.
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