Audio Note: Top Picks 2024

In 2023 Equals’ share price rose 36%, while its revenue rose by 36%, gross profit rose by >48%, and consensus forecasts were raised on numerous occasions. In 2024, we expect news flow to reflect well on both the quality and quantity of Equals’ streams of revenue and cashflow. In 2022 and 2023 growth was largely organic: In 2024 the acquisitions made in early 2023 should add to growth.

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Recovery at Gooch is accelerating. December full year results were in line with our estimates with revenue up 19% and operating profit 28%. Profit improvement spanned all three verticals – Industrials, Aerospace & Defence and Life Sciences; the basics, postCOVID, have been fixed. The next step is to lift margins and returns, which are too low, in our view.

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Intercede is the leading digital identity specialist in the authentication software market. The company is a led by a proven management team and benefits from high-growth markets, primarily driven by regulation. We expect the company to outperform conservative earnings expectation and valuation multiples to rise as the company delivers continued double digit revenue growth and expanding margins.

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Marshalls went into the downturn post the strategic acquisition of Marley Roofing. The rationale for the deal seemed obvious, it diversified the business, allowed for cross selling opportunities, and offered significant synergies.

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Nexteq is a well-managed technology provider with growing end markets and a resilient business model. Yet the company’s valuation multiples are near five-year lows (4.7x EBITDA 2024).

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Norcros was one of our top picks 2023 and whilst the shares did not get the rerating we argued it deserved they did perform relatively well due to the strength of the operational execution in what was a very difficult year. The company remains a top pick for 2024 due to its discount to peers, despite long term margin expansion within the UK, its ability to win market share and, hopefully, a gradually improving operating environment that will highlight the undervaluation of the South Africa business.

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Pendragon is disposing of its UK motor retail and leasing businesses to US dealer group Lithia and transitioning to a pure-play SaaS business with its Pinewood dealership management system (DMS) product suite. Subject to completing at the end of January, the deal will see c. 24.5p distributed to shareholders in Q1/Q2 2024 and Lithia subscribing to 16.6% of shares in the ongoing listed entity, leaving existing holders with 83.3%.

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PetroTal is an E&P with production onshore Peru. The company holds 100% in the Bretana field, and achieved production of 14.0mbbl/d for Q1-Q3 2023. This is generating significant cash flows, allowing ongoing CAPEX investment, full retirement of the company’s debt, and a dividend implying a yield of at least 10%.

View the full research note: Top Picks for 2024.