HSBC hikes target on GKN on trend towards electric, hybrid platforms
Analysts at HSBC hiked their target price on shares of GKN saying the company was set to benefit from the paradigm shift towards electric cars and hybrid platforms.
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The so-called eDrive segment already generates about 50.0m pounds of sales a year and management expected the tally to rise to roughly 200.0m by 2020.
HSBC also hailed the decision to sell Stromag, adding that concrete restructuring initiatives and a focus on acquistions would result in better earnings quality.
"If management continues to ‘tidy-up’ its Other Businesses and utilises its strong balance sheet we estimate that it has cGBP2.5bn to fund acquisition targets."
To all of those plusses one could add GKN's investments in R&D, the broker said.
On the matter of the company's pension deficit, which was last at 2.0bn pounds, HSBC said the IAS 19 accounting norm "materially" overstated the firm's liabilities.
The situation was manageable given how pension funding was at approximately five to six per cent of EBITDA in 2015 and 2016, HSBC said.
Improved Gilt curves could also help. A 100 basis point increase in the discount rate used to estimate its liabilities reduced them by 535m pounds.
From a valuation perspective, stock in GKN was changing hands at a 44% discount to UK engineers in terms of its 12-month forward price-to-earnings multiple.
Analyst Scott Cagehin revised his target price on GKN's shares from 395.0p to 445.0p while reiterating his recommendation to 'Buy'.