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12 Mar 2021 | 14:46

Broker tips: WPP, James Fisher, Rolls Royce

(Sharecast News) - Analysts at Berenberg raised their target price on advertising firm WPP from 885.0p to 925.0p on Friday, stating there were "few surprises" in its actual full-year results. Berenberg said its investment thesis on WPP remained broadly consistent with its December capital markets day, with headline operating profits coming in at £1.26bn, exactly in line with estimates and well ahead of the £829.0m it anticipated back in March.

While Berenberg said there was lots of colour on the results call, it also said there was nothing to "fundamentally change the investment case", leading it to reiterate its 'hold' rating on the stock.

While the German bank said WPP's valuation was "not challenging", it also believes that it fairly reflects the low visibility on a return to positive, sustainable, top-line momentum.

"It is pretty obvious that there will be growth in 2021, given the easy comps, but the real question is how WPP performs in 2022 and beyond, when growth will be reliant on fundamentals," said Berenberg, which highlighted that it continues to prefer Publicis to WPP.

Analysts at Canaccord Genuity raised their target price on oilfield services firm James Fisher from 1,200.0p to 1,375.0p on Friday following the group's full-year results a day earlier.

Canaccord highlighted that James Fisher's full-year results had come in at the top end of previous guidance, with earnings per share of 47.8p, down 39% year-on-year on known Covid-related problems and specific challenges in project-related work for the offshore marine markets, a writedown of various assets clearing the decks for its upcoming strategic review and a strong cash performance that resulted in year-end net debt of £198.0m.

Looking forward, the Canadian bank said Fisher's outlook for 2021 was for "a significant earnings recovery", with a reduction in Covid-19 effects and strong positive signs across multiple markets.

Canaccord, which reiterated its 'buy' rating on the stock, said it was now taking "a slightly more cautious view on earnings", moving broadly in line with consensus and reducing its forecasts by roughly 9% for the next three years.

However, at the same time, the analysts said they were "increasingly confident" in a resumption of Fisher's traditional valuation premium with "a more strategically focussed portfolio".

Analysts at Bank of America hiked their target price for shares of Rolls Royce from 55.0p to 80.0p in anticipation of stronger than previously expected free cash flow generation in 2022.

Bank of America stated projections for "strong" outcomes in the firm's power systems and ITP units were what had led it to raise its FCF forecast for 2022 to £364.0m.

Driving their expected recovery in growth in Power Systems was short-cycle demand in China, with margins in the unit seen rising past 10% by 2022 and into the mid-teens thereafter.

Key to their thinking, the debate around the engineer had shifted from its balance sheet towards its ability to meet its FCF guidance for 2022-23 of £750m.

However, given recovery risks to widebody aircraft demand, Rolls Royce's estimated 2023 7.7% FCF yield on offer was not attractive, driving their decision to stay at 'underperform'on the stock.

BofA said: "We are a strong believer in the traffic recovery this summer, but see this focused on leisure."

"Defence sales growth is expected to stabilise through to 2022 reflecting a flattening defence budget environment in the aftermath of COVID-19, echoing commentary from BAE Systems."
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