Berenberg has issued a downgrade for TT Electronics Plc. (TTG: LN) (OTC: TTGPF), shifting its rating from Buy to Hold and adjusting the price target to £1.00 from the previous £2.60.
The change follows TT Electronics' recent unscheduled trading update, which highlighted operational efficiency problems at two of the company's North American sites.
Additionally, the update indicated a delay in order intake for the North American components business, with deliveries now expected in fiscal year 2025 (FY25) instead of 2024 (FY24).
The company now anticipates its group EBIT (earnings before interest and taxes) to be between £37 million and £42 million, which is 29% below the consensus at the midpoint.
Leverage is also projected to be at or slightly above 2x net debt/EBITDA by December 2024. These developments have led Berenberg to revise its FY24 EBIT forecast downwards by 34% and earnings per share (EPS) by 43%, with respective reductions of 16% and 19% for FY25.
Despite these setbacks, TT Electronics' management remains positive about achieving its medium-term objectives, which include a 12% EBIT margin by FY26. The company's current valuation stands at 5.5 times FY25 price-to-earnings (P/E) and 5.3 times enterprise value to EBIT (EV/EBIT), which is considered inexpensive by the analyst.
However, investor confidence may have been impacted, and Berenberg expresses difficulty in identifying a potential catalyst that could significantly improve sentiment within the next six to twelve months, leading up to the achievement of the company's margin goals.
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