RE: Good vibes yet still slides!22 Mar 2017 14:25
Another broker downgrade!
Credit Suisse has joined the list of City firms that has fallen out of love with Berendsen PLC (LON:BRSN), the laundry and workwear outfit.
The Swiss bank has downgraded the stock to ‘underperform’ from ‘outperform’ and has slashed the target price to 700p from 1,200p, finally catching up with the battering the stock has taken since the profit warning of late October.A lack of investment into the business over a number of years means that the business now requires a meaningful injection of capital over the next few years alongside a re-vamping of operational and information technology processes, Credit Suisse reckons.
The management team is on the case, but the Swiss finance house calculates that the cost of the investment needed to right the ship will lead to negative free cash flow for the next three years.
“Higher depreciation and interest charges, resulting from the additional investment, combined with on-going wage inflation will, we think, more than offset the benefits from the productivity benefits of additional investment,” Credit Suisse said.
In short, Credit Suisse thinks the textile services group faces a period of rising leverage, lack of cash generation and sluggish operational performance.
The shares do offer a 3.8% dividend yield, which Credit Suisse expects the company to fund from its balance sheet until 2021, when the company should start generating positive cash flow again.
Shares in Berendsen fell 3.6% this morning to 783.5p