Berenberg lowers target price on Gamma Communications
Analysts at Berenberg lowered their target price on communication services and solutions provider from 2,000.0p to 1,570.0p on Friday as it said macro pressures on UK SMEs had forced it to lower forecasts.
Berenberg said following Gamma Communications' annual general meeting trading update in May, it had reiterated its 'buy' rating on the stock but had opted to lower its DCF-based price target. However, Berenberg noted that its new target price still offered an "attractive" potential share price upside of roughly 31%.
"We cut our group EPS five-year CAGR forecast to 9% from 11%, driven by our expectation of lower organic growth in the UK Business division," said the German bank.
"We continue to expect a valuation re-rating in the Gamma shares from current levels (trading at 13x P/E and 8x EV EBITDA). We still believe there is further share price upside potential from more value-accretive M&A or additional shareholder distributions given headroom provided by Gamma's strong FCF generation (c8% FCF yield) and under-leveraged balance sheet."
Reporting by Iain Gilbert at Sharecast.com
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