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Broker sees potential upside of 43% from current levels
Citi suspects that no trading update means Appen will hit its guidance in FY 2021
The Appen Ltd(ASX: APX) share price has been a strong performer on Tuesday.
In morning trade, the artificial intelligence data services company’s shares are up 5% to $10.32.
Why is the Appen share price pushing higher today?
The catalyst for the rise in the Appen share price on Tuesday has been a broker note out of Citi.
According to the note, the broker has retained its buy rating on the company’s shares and added them to its positive catalyst watch.
And although the broker has cut its price target by over 13% to $14.80, this still suggests material upside of 43% over the next 12 months based on the current Appen share price.
Why is the broker positive?
Today’s recommendation essentially comes down to the proverb: “No news is good news.”
Citi notes that Appen has not released a trading update in relation to its performance during FY 2021, which ended on 31 December.
Given that it has provided guidance for earnings before interest, tax, depreciation and amortisation (EBITDA) to be at the low end of $81 million to $88 million in FY 2021, the lack of update appears to be an indication that it has performed in line with expectations.
After all, the company would be obliged to update the market if it found that its results differed materially to its guidance. This is exactly what it did in the middle of December 2020 when it realised that its FY 2020 results were going to fall short of guidance.
All in all, Citi suspects there could be upside risk to consensus estimates.
Unless Appen surprises with a trading update in the second half of January, the next time we’ll hear from the company is on 24 February when it releases its eagerly anticipated full year results.
Though, arguably it will be what management says about FY 2022 that could have the greatest impact on the Appen share price. Especially with some brokers speculating that big tech companies are bypassing Appen and taking their data annotation services in-house.