Broker tips: Auto Trader, Next Fifteen, Deltic Energy

Auto Trader rallied on Tuesday as UBS upgraded the shares to 'buy' from 'neutral', arguing that the risk/reward had become attractive going into the first-half results and that the recent selloff was overdone.

"The company is a quality compounder and has delivered an 8% historical revenue compound annual growth rate through a combination of price increases and product innovation. Yet its revenue still only represents circa 5% of UK used car dealer gross profit," said UBS.

"Further, we see an opportunity to accelerate growth to 10% by enabling consumers to buy cars from dealers online."

UBS, which cut its target price on the stock from 710.0p to 600.0p, said the share price drop had been driven by concerns that Auto Trader could be impacted by a UK recession and lower market transactions.

"At 19x consensus FY24E EPS, we estimate the market is pricing in a circa 15% cut to consensus FY24E EBITDA. However, we believe this is too pessimistic, given Auto Trader core revenues are primarily driven by the number of listings on its website, and not by the number of end market transactions," said the analysts. "We think H123 results (due 10 November) could be reassuring to investors and a positive catalyst."

Analysts at Berenberg lowered their target price on technology and data-driven growth consultancy Next Fifteen from 1,700.0p to 1,450.0p on Tuesday, calling it "a mispriced share".

Berenberg increased its full-year 2023-24 adjusted underlying earnings and earnings per share estimates by 13%/9% and 9%/6%, respectively, due to Next15's "exceptional trading" in the first half of 2022.

The German bank also noted that Next Fifteen has the highest organic growth, 31% year-on-year in the first half, and the "most robust outlook" in the sector, demonstrated by the consistent upgrades delivered year-to-date.

Despite this, Berenberg said the stock still trades "well below" both its historical range and the sector average.

"We believe the shares are mispriced and reiterate our 'buy' rating. We reduce our price target to 1,450.0p (from 1,700.0p) to account for lower peer multiples and higher WACC," said Berenberg.

"Next15's shares have de-rated to near their lowest levels in ten years (excluding the Covid-19 drawdown) and trade below the sector average on 10.5x FY 2023 P/E, falling to 9.5x in FY 2024."

Analysts at Canaccord Genuity initiated coverage on exploration and production outfit Deltic Energy with a 12.5p target price and a 'speculative buy' rating on Tuesday, primarily due to the group's two-well UK gas exploration programme.

Canaccord Genuity noted that Deltic Energy has two exploration wells to look forward to over the next 12-18 months, the first of which, Pensacola, was due to start drilling in mid-November, with results expected very early 2023. The second well, Selene, was pegged to be drilled in roughly 12 months.

"Deltic is fully funded for these wells through a combination of cash resources and financial carries from Shell which farmed-in to and is now operator of both wells," said Canaccord.

"Success at either Pensacola or Selene could deliver a step change in Deltic's market value, and our risked value for each fully supports Deltic's market value. As always though with exploration, there may be significant market volatility depending on the results."

While Pensacola and Selene were "clearly" the near-term operational focus and primary market catalysts, the Canadian bank also acknowledged that Deltic has a number of other licences in the UK.