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Berenberg initiates coverage on 'strong' and 'competitive' Huntsworth at 'buy'
Berenberg initiated coverage on healthcare communications firm Huntsworth with a 'buy' rating on Wednesday, highlighting the group's "strong competitive positioning".
Huntsworth, a top ten player in the $6bn healthcare communications market, has benefited from the growth in the global pharmaceutical market and its ability to navigate the "increasing complexity" of being able to deliver the right information to stakeholders through "increasingly digital channels", the broker explained.
Excluding mergers and acquisitions, Berenberg forecast "double-digit earnings growth" for Huntsworth's underlying hearlthcare revenues , even after having nearly doubled peers' rate of top-line growth over the previous three years.
From its roots as a general PR company, Huntsworth now generates 80% of its profits from its healthcare services businesses, which provide a range of marketing, technical communications and event engagement services that had generated underlying revenue growth of 12.6% per year between 2014 and 2017, leading Berenberg to project a 10-12% rate of increase in operating profits across those businesses.
The non-healthcare division on the other hand had registered a decline through a "period of restructuring and refocus", but it had stabilised in 2017, giving the broker cause to forecast 9-11% annual operating profit growth rates for the group.
That was better than management's more cautious guidance of 6-7% per year.
Berenberg also noted that Huntsworth's strong balance sheet could be leveraged to deploy up to £100m for mergers and acquisitions over the next two-and-a-half years, lifting earnings by 15% or more.
"While being driven by similar structural healthcare trends as its healthcare peers, Huntsworth is listed within the media sector. It trades at a c20% discount on P/E to the UK midcap healthcare sector, and versus peer UDG healthcare, which derives around two-thirds of its profits from healthcare communications, it has almost half the multiple and twice the cash flow yield," the broker said as its issued the firm with a target price of 135p.