Proactive Investors - Run By Investors For Investors

Inchcape drives higher as Jefferies International starts coverage with a ‘buy’ rating and 845p target price

Analysts at the US broker said: “Inchcape's low valuation does not represent its repositioned business, strong cash flow and potential for upgrades, in our view”
Car driving
Jefferies' analysts said they expect that the FTSE 250-listed firm will apply material surplus cash flow to M&A or share buy backs which could drive upgrades

Jefferies International gave a lift to shares in Inchcape PLC (LON:INCH) on Tuesday as it started coverage on the international car dealership group with a ‘buy’ rating and 845p target price, offering around 35% upside potential.

In a note to clients, analysts at the US broker said: “Inchcape's low valuation does not represent its repositioned business, strong cash flow and potential for upgrades, in our view.”

READ: Inchcape full-year profit drops as sales hit by stricter emissions rules, challenging retail market

They added: “After a period of estimate resetting we now expect Inchcape to positively re-rate from depressed valuation multiples (9.4% free cash flow yield; 10.3x PE; 5.7x EV/EBITDA; 4.4% dividend yield).”

Jefferies' analysts said they expect that the FTSE 250-listed firm will apply material surplus cash flow to M&A or share buy backs which could drive upgrades.

They pointed out that Inchcape now proactively seeks M&A targets and has completed eight distribution deals and two distribution acquisitions in the last few years.

The analysts added: “We estimate £0.9bn-£1.0bn of cumulative acquisition or share buyback firepower is possible over the next three years (end FY21E, assuming 1x net debt/EBITDA), with implied 23% (M&A) to 48% (buy back) EPS accretion.”

In late morning trading, Inchcape shares were 0.3% higher at 617p.

View full INCH profile View Profile

Inchcape Timeline

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use