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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.

Quick facts: Inchcape

Price: 615.5 GBX

LSE:INCH
Market: LSE
Market Cap: £2.48 billion
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