Broker tips: RSA Insurance, Hill and Smith, Barratt Developments
By Alexander Bueso
Date: Friday 07 May 2021
(Sharecast News) - Peel Hunt downgraded RSA Insurance on Friday to 'hold' from 'buy' but lifted the price target to 685p, which is the price it has agreed to be bought at by Intact Financial Corporation and Danish insurer Tryg.
The broker noted that RSA's takeover by the Intact-Tryg consortium is nearing completion, with all regulatory approvals now having been received.
Peel Hunt said the offer price is an attractive 18% premium to its 580p fair value estimate.
"We believe the consortium is buying RSA at an interesting inflection point for the Commercial lines business, as per the 1Q results, together with a healthy capital base.
"Intact's plans for RSA's UK Retail activities will be interesting to follow."
Jefferies initiated coverage of Hill & Smith on Friday with a 'buy' recommendation and 1,750p price target, saying the company has "all the ingredients to re-rate".
"Hill & Smith has an attractive spread of end markets spanning the general theme of 'infrastructure investment'," Jefferies said. The bank's organic revenue growth forecast of around 6% a year for FY21-FY24 is double the historic trend.
"Fuelling this growth is rising government investment on road networks in the UK (£27bn Road Investment Strategy 2) and US ($135bn within the proposed American Jobs Act).
"Our proprietary Road Investment Model indicates market growth of 4% per annum (FY20 - FY25F) which will support both the Road & Security and Galvanizing divisions."
Jefferies also said the US utilities businesses looked well-placed to benefit from stimulus-driven upgrades to the US electricity grid and secular growth in demand for composites as a more environmentally friendly and more durable alternative to steel and wood.
Analysts at Canaccord Genuity nudged up their target price on homebuilder Barratt Developments from 825.0p to 835.0p on Friday following yesterday's trading update.
Canaccord said Barratt's update confirmed that demand had remained "strong", with the group seeing a "good spring selling season", as expected, as build rates came in better than expected, leading the firm to raise volume guidance for the current financial year.
While the analysts noted that Barratt was seeing higher build cost inflation into the 2022 trading year, it was also seeing "decent house price inflation", which left it confident of being able to offset expected cost inflation.
"Looking to FY2022, management sounded more confident that volumes would reach FY2019 pre-Covid levels with more sites and good build rates driving volumes rather than higher sales rates. There seems to be very good visibility over the outcome for FY2021 and we are more confident in volumes exceeding 17,000 in FY2022," said Canaccord.
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