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Analyst downgrade suggests NCC recovery story has been overblown

Published: 06:22 24 Jul 2017 EDT

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Berenberg's downgrade suggests some 20% downside to the current price

NCC Group PLC’s (LON:NCC) recovery story has been overblown in the market, according to Berenberg, which on Monday downgraded it to ‘sell’ and set a new target of 155p, suggesting some 20% downside to the current price of 196p.

“Within our broader UK mid-cap coverage, numerous companies have tried to restructure their businesses. Some are successful, some are not,” Berenberg analyst Edward James said in a note.

“Our experience, however, would suggest that share prices often rally more quickly than management teams can make meaningful changes.”

READ: NCC Group's shares drop 25% as it warns again on Assurance arm, starts strategic review

There are still significant risks on delivery

“[NCC] shares are up by 70% since lows in February and although its plans are credible, we cannot justify paying the current multiple given there are still significant risks regarding delivery.”

The analyst added: “NCC has been forced to make radical changes to its business.

“Specifically, NCC is aiming to change and improve its sales structure, consultant utilisation, billing procedures, finance and reporting systems, CRM portal, ERP systems and product focus.

“While its plans are credible, we feel this could bring significant operational disruption. At current levels, the shares do not seem to be discounting this risk.”

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