It’s not too late to get on board the Morgan Advanced Materials plc (LON:MGAM) bandwagon, says Berenberg, which has upgraded the stock to ‘buy’.
Results for the first half of 2018 from the advanced ceramics and carbon products manufacturer showed “significant progress”, according to Berenberg, with 7.8% year-on-year organic sales growth and 12.4% organic growth in underlying earnings (EBITA).
READ: JPMorgan Cazenove boosts Morgan Advanced Materials rating to ‘overweight’ from ‘neutral’
That was a better performance than the German bank had been expecting and means Morgan is now trading ahead of its end-markets.
Berenberg has become increasingly confident that Morgan is “in the best shape it has been for many years”.
Organic growth of 6.7% and a return of capital employed of 17.1% projected by Berenberg for the full-year are the highest rates since 2011 when Morgan was recovering from the financial crisis. Leverage of 1.1 times annual underlying earnings is the lowest since 2007 while cash generation has significantly improved.
“Operationally, the company now seems better positioned in more attractive end-markets with an improved, more streamlined organisational structure,” Berenberg suggested.
The bank thinks the company is set to enjoy the fruits of increased research & development (R&D) over the next two-to-five years, while margins could be set to improve, having been weighed down in the past by R&D spending, unhelpful exchange rate movements and the loss-making defence business, which is up for sale.
Berenberg has a target price of 420p for Morgan, up from 330p previously; the shares were up 4.4% at 367p on Monday morning.