On Thursday, Deutsche Bank adjusted its stance on Bakkavor Group Plc (LSE:BAKK) from "Buy" to "Hold," while keeping the price target steady at GBP1.40. This decision comes after a notable increase in the company's share value since the end of April.
The firm observed that Bakkavor's shares have appreciated by 31% since April 30, 2024, surpassing the previously set target of 140p. Based on the current figures, the stock is trading at a price-to-earnings (PE) ratio of 15.3 and an enterprise value to EBITDA (EV/EBITDA) multiple of 6.7 for the calendar year 2024. These metrics led the bank to conclude that the shares are now fairly valued, prompting the rating change while the price target remains unchanged.
Deutsche Bank's unaltered price target of 140p is rooted in a discounted cash flow (DCF) analysis. This includes a cost of equity calculated at 10.0%, which is a sum of a 4.5% risk-free rate, a 5.5% equity risk premium, and a beta of 1.0. The bank's valuation model also incorporates detailed forecasts for the coming four years and a subsequent ten-year holding period.
In their forecasts, they assume a sales growth rate of 2.0%, which aligns with the growth rates seen in the category, and stable adjusted operating profit margins at 4.9%. For the long-term outlook, a perpetuity growth rate of 1.0% is used to reflect demographic trends. These inputs contribute to the bank's continued price target of 140p despite the rating downgrade.
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