On Thursday, UBS adjusted its stance on Applus Services SA (APPS:SM), downgrading the stock from "Buy" to "Neutral." This shift in rating comes despite the firm recognizing Applus' strong organic growth throughout 2023 and its progress in debt reduction. The analyst cited the ongoing uncertainty surrounding the retender of the IDIADA division, which is responsible for approximately 20% of the company's underlying profits, with outcomes expected by September 2024.
The price target for Applus Services has been raised to €12.00, up from the previous €11.50. This increase is based on adjustments to the discounted cash flow (DCF) model, which now reflects anticipated changes in adjusted earnings per share (EPS) ranging from a decrease of 2% to an increase of 4% over the fiscal years 2024 to 2026.
The analyst noted that the company has been performing well fundamentally, with significant organic growth seen last year and steps taken towards reducing leverage. However, the stock's current trading price, influenced by two competing bids valued at €10.65 and €11.00 per share and the Board's favorable view of the offer, has been hovering between €11.40 and €11.70. This trading range has led to the decision to downgrade the rating.
The UBS report highlights that while Applus Services has been showing positive fundamental trends, the market conditions and the specific circumstances regarding the IDIADA division create a level of uncertainty that warrants a more cautious investment rating at this time.
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