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10 Mar 2021 | 14:59

Broker tips: ITV, Ferrexpo, Experian, Pearson

(Sharecast News) - Analysts at Berenberg raised their target price on broadcaster ITV from 95.0p to 112.0p on Wednesday but raised questions about the group's advertising revenues when "normal life" resumes. While Berenberg said there were extra savings, extra investment and higher Britbox losses in ITV's full-year earnings, it believes that the real driver of the group's future profitability would be how advertisers respond to consumer freedom.

The German bank stated demand for advertising was "strong" in April, as advertisers anticipate consumer spending on categories like autos, non-food retail and travel, but noted that ITV would also equally benefit from the fact that next month, Britons will still be "mostly stuck at home watching television".

Berenberg added that if Boris Johnson's planned timetable holds up, however, consumers will be out and about this summer, and stated that the appeal of programmes like Love Island and football "may be less than anticipated".

"In such a scenario, we do not believe advertisers will allocate more money to in-home advertising (the cost of which will rise as viewership declines), but will rather increase marketing in out-of-home categories, which offer low ad prices and strong audience growth," said the analysts, who also reiterated their 'hold' rating on the stock.

House broker Liberum upgraded its rating on shares of iron ore company Ferrexpo to 'buy' from 'hold' on Wednesday, hiking the price target to 500.0p from 180.0p.

Liberum said high-grade iron ore pellets give the company a structural long-term margin advantage over Australian peers as the market pushes for more environmentally friendly steel.

"Operating free cash flows from better margins are sufficient to deliver 66% volume growth over the next ten years and a sustainable dividend yield of 12.7%, more than compensating for perceived country risks," it said.

"Trading on operating free cash flow yield of 37% with upgrades to consensus of 74% in 2021, we upgrade to buy."

Liberum added that the stock was cheap on "essentially any metric one wants to examine", especially when measured against lower-grade peers like Rio Tinto.

JP Morgan reiterated its 'overweight" rating on Experian and made the credit checker its "top idea" after a recent decline in the share price.

Product innovation is strong and excluding Covid-19 margins have been stable despite material IT investment and other spending, JP Morgan said. Experian's cash generation is "best in class" and the company should have strong organic growth based on a recovering credit business and new products, the bank said.

JP Morgan analyst Sylvia Barker stuck to her 'overweight' rating and price target of £32 compared with a price of £24.41 at the time of publication. The shares have dropped from £27.77 at the end of December.

"This is an interesting time to be considering the Experian investment case as the stock has de-rated while fundamentals look attractive," Barker said. "We believe fiscal 2022 should see strong organic growth ... There are also several drivers for margin expansion."

Bank of America Merrill Lynch upped its price target on educational publisher Pearson and reiterated its 'overweight' rating following the release of its full-year results.

The bank, which hiked its price target to 895.0p from 770.0p, pointed to growing confidence in the mid-term outlook and peer group re-rating.

"Shares have rallied, but Pearson is poised for a sustained return to growth - the strategy update delivered an upbeat message on positioning and long-term outlook, and we see catalysts ahead as chief executive officer Andy Bird delivers on the direct-to-consumer strategy," ML said.

The bank said Pearson's new strategy looks set to deliver a return to sustained revenue and profit growth.

"We see an attractive recovery story not fully appreciated by current market valuation. We expect a turning point in the prospects for the North American Courseware division as it moves closer to completing a protracted transition to digital formats," said ML, which also noted that a new CEO and a strong balance sheet suggested scope for both acquisitions and disposals.
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