Tuesday, BofA Securities upgraded Netcompany Group A/S (NETC:DC) to Buy from Neutral, adjusting the share price target to DKK357.00 from DKK324.00.
The upgrade follows Netcompany's first-quarter results, which surpassed expectations and provided confidence in the company's accelerating top-line growth throughout the year. This optimism is supported by improving market conditions, particularly in Denmark, and the progression of contracts in the UK and Norway.
The analyst from BofA Securities highlighted the additional DKK 250 million share buyback program Netcompany has initiated, which is expected to run until August.
This forms part of a broader cash return strategy, targeting at least DKK 500 million for 2024, with DKK 150 million already completed. Netcompany's overall plan is to return approximately DKK 2 billion to shareholders over the period from 2024 to 2026, representing around 16% of its market capitalization.
Despite a 29% year-to-date increase in Netcompany's share price, the stock is trading at 19 times its estimated 2025 earnings per share (P/E), which is a 15% discount compared to its median forecast year two P/E since its initial public offering in 2018.
BofA's analysis suggests that the company is well-positioned in the digital transformation sector and anticipates a strong mid-term growth outlook, with an estimated compound annual growth rate (CAGR) of 11% for revenue and 27% for adjusted EBITA from 2023 to 2026.
The upgrade also comes with a revised projection for Netcompany's adjusted EBITDA for 2024 and 2025, increasing by approximately 4% and 6% respectively. The new price objective represents a roughly 10% enhancement from the previous target, based on a 21 times multiple of the estimated 2025 P/E, which has been increased from 20 times to reflect Netcompany's improved growth profile in comparison to its digital IT services peers. BofA Securities sees a 22% upside potential for the stock at the new price target.
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