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29 Mar 2021 | 15:03

Broker tips: BT Group, Ceres Power, Strix Group

(Sharecast News) - Morgan Stanley upgraded its stance on shares of telecoms company BT Group on Monday to 'overweight' from 'equalweight' and lifted the price target to 200.0p from 125.0p as it argued that overhangs are easing. The bank said that after several years of headwinds - dividend cuts, uncertain regulation, higher capex, Covid-19 - the outlook for BT now looks more promising.

"Although more details could have been more supportive, particularly around returns, BT has now confirmed its £12.0bn investment to build FTTP to 20.0m premises by the mid-to-late-2020s. This drives greater certainty around capex and over time we expect the topic of fibre regulation, which has been a headwind for years, to gradually fade away."

MS also pointed to "unexpected" government support for fibre investments and said the new super-deduction tax scheme could mean that BT pays very little tax in the next few years.

"BT is an incumbent operator with a growing fibre business and a leading mobile unit". MS said. "Yet the stock's valuation is cheap after multiple years of downgrades and de-rating."

Berenberg has upped in price target on Ceres Power on growing investor interest in fuel cell technology.

The bank said it expected Ceres, a fuel cell specialist, to be a "long-term winner" of the clean energy transition. It upped its price target to 1,560.0p from 1,540.0p and reiterated its 'buy' rating on the Aim stock.

Berenberg, which is also Ceres' broker, said investors had become increasingly focused on hydrogen during 2020. "Yet unlike prior spikes in interest, this time we are confident it is here to stay," the bank argued. Hydrogen is the most common fuel used in fuel cell technology.

"As such, we believe hydrogen will be a reality this time round, with Ceres one clear winner of the transition."

Berenberg concluded: "We believe the current share price implies Ceres achieves sales of £400.0m by the end of 2035. Our demand-based and new bottom-up supply-side modelling suggests it could be £750m-£1.2bn from the fuel cell business alone.

"When including the electrolysis opportunity, we envisage scenarios that generate more than 200% upside to the current share price."

Analysts at Canaccord Genuity stood by their 'buy' rating and raised their target price on kettle safety controls manufacturer Strix Group from 265.0p to 310.0p on Monday, stating that growth was "coming to the boil".

Canaccord said Strix had reported a "resilient" and "in line" set of full-year numbers last week, something it said had demonstrated a "strong cash performance" amid a "challenging" first half, with gross margins increasing 50 basis points to 41.4% and earnings before interest, tax, depreciation and amortisation margins up 190 basis points to 40%, reflecting mix, production efficiencies and strategic initiatives.

Although the Canadian bank acknowledged that Strix's share price had "performed strongly year-to-date", up 24% since 1 January, it also highlighted that it still sees potential for a further 14% upside based on peer multiple analysis.

"Overall, with Strix expecting the Kettle Controls business to return to pre-COVID-19 levels, we forecast top-line growth of 26.4% (FY21E) with 10.4%/9.8% organic growth flowing through FY22E/23E," said Canaccord. "While we expect absolute profits to increase, margin will fall (as guided) due to the dilutive effect of Water & Appliance which trade on around 20% gross margin."
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