- Analyst sees up to 40% share price upside
- 2021 figures beat forecasts with 20-year high margins
- Fast growth in clean energy and medical markets
Analysts at investment bank Berenberg claim that Morgan Advanced Materials is an ‘under the radar’ stock with potential for around 40% share price upside over the next 12 months.
‘When we upgraded Morgan in January the world was in an altogether different place,’ said Berenberg in a note to clients.
‘However, our view remains unchanged on the company: we expect continued financial improvement (towards mid-teen margins) alongside greater investor communication (a capital markets day is confirmed for the second half of 2022) to drive a re-rating in the stock as and when markets begin to normalise.’
Morgan Advanced designs smart materials to create smarter and energy efficient products. These include high-temperature insulation ceramics and carbon kits used in heavy industry and smart performance electronics needed in smart semiconductor fabs.
In March, the company flagged strong demand recovery across the global economy as it beat full year 2021 expectations, despite supply chain and inflation pressures. ‘We made further progress with the execution of our strategy, strengthening our capabilities and improving the sustainability of our business,’ said chief executive Pete Raby at the time.
‘This resulted in strong growth and saw margins at their highest point in more than 20 years.’
FORECASTS BEATEN IN 2021
Morgan Advanced saw earnings before interest, tax and amortisation margins hit 13.1% last year, alongside a return on invested capital of 20.9%, according to Berenberg.
Organic revenue expansion of 10.3% was driven by 22% growth from faster-growing markets, such as clean technology, clean transport and medical applications.
The investment bank spelled out that while continuing to deliver on its growth strategy and mid-term potential will be paramount in driving a share price re-rating, so too will a change in investor perception.
‘This includes clearer key performance indicators, increased understanding of key business operations (through a CMD later this year), simplified messaging of the investment proposition and greater clarity of the group’s ESG credentials - something that has been increasingly prevalent in recent results,’ said Berenberg.
Morgan Advanced shares have lost around 16% year-to-date, although they have rallied about 8% over the past month to 309p. Berenberg has set a 425p target price for the stock over the next year, implying a 2023 price to earnings multiple of 15.
