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BBA Aviation upgraded to ‘Buy’ by Jefferies as broker says firm “oversold” and now assumes “limited market growth”

The broker said BBA’s shares had been weak over the past 6 months but they believed the current level was “a good entry point for investors given an attractive valuation”
Private jet aircraft
BBA's Signature business provides support to the owners and operators of private jets

Broker Jefferies has upgraded BBA Aviation PLC (LON:BBA) to ‘Buy’ from ‘Hold’ as analysts said the FTSE 250 aviation services firm had been “oversold” and they now assumed “limited market growth”.

In a note, the broker said BBA’s shares had been weak over the past 6 months but added that they believed the current level was “a good entry point for investors given an attractive valuation”.

READ: BBA Aviation still affected by slow down in US flying hours

Analysts cited a normalisation in the performance of BBA’s Signature flight support business, which it said was “outperforming its underlying markets”, and growth in the Ontic aerospace equipment arm.

“Signature is a strong and valuable business (as is Ontic) and market sentiment towards it is overly negative, in our view. In order to be prudent, we now assume limited underlying market growth over the next few years, but Signature's strength, scale and network relevancy are intact, and we expect market outperformance and healthy levels of profitability to continue”.

Jefferies added that it believed BBA remained “a strong business, with high barriers to entry” as it reset its forecasts for the firm and cut its target price to 290p from 368p.

“Accordingly, with 26% potential upside to our new 290p price target (along with a 5.1% dividend yield), we upgrade to Buy. We do not expect materially positive near-term catalysts, but normalisation of Signature's end markets (along with continued market outperformance), growth in Ontic and delivery of inline [profit/loss]/[cash flow] results should drive improved sentiment and help to re-rate the shares.”

READ: BBA Aviation loses altitude as it cautions on soft US market

BBA’s shares have been under pressure and have lost around 32% of their value since August after the firm warned that the US business & general aviation (B&GA) market had been softer than expected.

In mid-morning trading Thursday, BBA shares were steady around 229.8p.

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