Broker tips: Victoria, IG Group

Analysts at Berenberg slashed their target price on floorings manufacturer Victoria from 600.0p to 300.0p on Thursday but reiterated their 'buy' rating on the stock.

Berenberg said Victoria's ad hoc trading update for the year ending March 2024, released on Wednesday, saw it lower guidance for underlying earnings to £160.0m for FY24, versus prevailing consensus at £187.0m, with a greater impact at the EBIT and pre-tax profit levels given the level of depreciation and interest cost in the business.

"In itself, the weakness in demand is not hugely surprising given the trends reported by other UK- and European-focussed building products companies, although we note that the company has significantly more moving parts than the average building products company due to prior acquisitions and restructuring, and also obviously has more debt," said Berenberg.

The German bank said the group had cash on-balance-sheet of £91.0m and then total liabilities outstanding of £1.144bn, split between £651.0m senior bonds, £131.0m other debt, £295.0m preferences shares and £163.0m IFRS 16 leases. Given that bond purchase liquidity was currently constrained, management has announced a £25.0m share buyback.

"On updated numbers, we see FY24 net debt pre-IFRS 16 pre-preference shares at £681.0m, falling to circa £637.0m in FY25," added Berenberg.

IG Group shares traded higher on Thursday after broker Shore Capital said the stock offered "deep value".

Shore Capital analyst Vivek Raja said trading was "broadly in line albeit [...] subdued". Raja pointed out it was "reassuring" that active client numbers were up on the second quarter and down just 4% year-on-year.

Forecasts remained unchanged following the update though the analyst pointed out that the company would have to generate £260.0m in the final quarter to meet its forecasts when it reports its annual results in July.

"IG offers deep value: on our prevailing estimates [the 12-month forward price-to-earnings ratio] is <7x," Raja said. "Meanwhile, yield on the progressive ordinary dividend is 6.5% whilst IG continues to exercise a rolling share buyback programme at £250m per year, underpinning an attractive proposition for income investors."

Shore Capital maintained a 'buy' rating on the stock, with Raja predicting "considerable share price upside" to the broker's prevailing fair-value estimate of 1,100.0p.