Broker tips: Bridgepoint, Kooth, Close Brothers

(Sharecast News) - Citi upgraded its stance on private equity firm Bridgepoint on Friday to 'buy' from 'neutral' as it said the share price fall was overdone. The bank noted that in its initiation report, it observed the strong growth opportunity available to Bridgepoint in the mid-market private asset space, but argued the valuation was rich relative to peers.

"The subsequent fall in the share price means this is no longer the case," it said. "Even after the bounce following the FY21 earnings beat the stock is still only trading on 23x 2023E price-to-earnings, so we see this as a more attractive entry point."

Analysts at Canaccord Genuity lowered their target price on mental health care specialist Kooth from 470.0p to 380.0p on Friday following the firm's results earlier in the week.

Canaccord Genuity said Kooth's 2021 full-year results confirmed ongoing momentum for the company, with revenues up 28% year-on-year to £16.7m, slightly ahead of expectations, and gross margins remained broadly flat at 69.5%, as one-off Covid-19 benefits reversed to normalised levels.

The Canadian bank stated that following on from the reclassification of clinical engagement costs to indirect marketing spend, Kooth's margins now sit a level above industry peers as it benefits from operational efficiencies from the platform.

However, Canaccord said its 2022 full-year sales forecast assumed a slower pace of growth for Kooth at 21%, in line with the 20% annual recurring revenue growth achieved in 2021, as high CYP market share gains temper.

"Nonetheless, industry demand is set to continue, as digital transformation tailwinds continue within the NHS (as set out in our recent sector update), compounded by the rising demand for mental health services both domestically and internationally," said the analysts, who stood by their 'buy' rating on the stock.

Liberum upgraded Close Brothers to 'buy' from 'hold' on Friday, arguing that the recent share price fall was overdone.

It said: "Although Russia's invasion of Ukraine may lead to lower economic growth in the short-term, with the market expecting the UK base rate to rise to 2.0% by year-end, banks are at long last set to benefit from economic tailwinds.

"This, coupled with the potential for further Covid-19 provision releases, should lead to earnings beating estimates, which remain conservative. We continue to prefer the specialist lenders, as they have carved out niches and are becoming leaders in their respective markets, such as BTL mortgages and SME lending."

Liberum, which left its price target for Close Bros unchanged at 1,490.0p, said the firm has a resilient and time-tested business model of lending conservatively at good margins. Despite this, loan growth over the last 18 months has been "impressive", helped by government support schemes and cash flow deficits at SMEs.

"Moreover, the net interest margin has improved, evidencing continued pricing discipline. The group has outperformed peers during downturns and with the current uncertainty and trading at FY22E P/TBV of 1.2x and a P/E of 8.6x for return on tangible equity of 14.6%, and with a dividend yield of 5.8% we believe the recent share price fall is overdone."