Broker tips: British Land, BAE Systems, Hikma, Unite, Londonmetric
By Iain Gilbert
Date: Tuesday 10 Dec 2024
(Sharecast News) - Goldman Sachs upgraded its stance on British Land on Tuesday to 'buy' from 'neutral', citing a stronger growth outlook, as it took a look at European real estate stocks.
The bank expects a combination of improving rental growth prospects, acquisitions, and pipeline opportunities to drive higher earnings per share/net tangible assets growth.
"We now forecast 7% EPS/6% NTA five-year compound annual growth rate," it said. "Our economists' forecasts for lower rates further support our British Land upgrade to buy with our new 500.0p PT (up 22%) implying 36% upside potential."
More broadly, Goldman said that as REIT asset values bottom out, balance sheets remain under control, and capital markets/financing are increasingly supportive, REITs have been recovering. The bank stated it now sess increasing investment/M&A activity in the market - from a low base- and expects more to come.
"At the same time, operations remained largely healthy at 3Q24, with improving rental prospects in London offices while logistics may see less rent tension from here," it said. "We see NTA re-rating as a key catalyst for the space with GSe 6% ahead of Visible Alpha Consensus Data on 2025E NTA for our 'buy' names."
Berenberg has lifted its target price for BAE Systems from 1,360.0p to 1,440.0p and reiterated a 'buy' rating on the aerospace and defence giant, saying growth drivers for the business remain "compelling".
"The growth drivers for BAE Systems continue to be its Maritime division, and its armoured vehicles businesses in Sweden and the US (circa 33% of revenue combined)," Berenberg said. "Visibility is extending in each of these areas through recent contract awards and the order pipeline will remain buoyant over the coming years, in our view. This will be driven by the restocking of military equipment linked to the conflict in Ukraine and the demand boost from the US supplemental aid package to Ukraine."
Beyond this, the broker pointed to long-term drivers like the Global Combat Air Programme fighter jet and the AUKUS submarine alliance, which will run for several decades, which provides good visibility for the business.
With a "promising" order outlook - particularly across BAE's armoured vehicle and combat air portfolio - the broker kept a positive stance on the stock, which trades at 15.9 times forward earnings.
Analysts at RBC Capital Markets upgraded Hikma Pharmaceuticals from 'sector perform' to 'outperform' on Tuesday as it took a look at the wider European pharmaceutical and biotechnology sector.
RBC said after "a robust rebound" for Hikma's Generics division in 2023, growth has been slower in 2024 due to "higher payaways on sodium oxybate".
However, it still expects Hikma to return to mid-high single-digit growth CER, with "notable opportunities" in its Injectables and Branded business segments.
The Canadian bank also noted that Hikma trades at a sector discount on PEG ratio and said, even if the multiple doesn't re-rate, the combination of high single-digit earnings growth and 3% dividend yield should support attractive shareholder returns.
"We value Hikma using an average of three approaches. Our PE sum-of-the-parts sets fair value at £22.71. A PEG ratio analysis (sector of 1.7x) suggests a lower valuation of £21.70, Finally, our DCF model (9% cost of equity and 1.5% terminal growth rate) suggests fair value at £26.76. The average of these approaches, rounded to the nearest 25.0p, sets our price target at £23.75, which implies over 20% upside," said RBC.
JPMorgan Cazenove upgraded Unite but downgraded LondonMetric on Tuesday as it took a look at the outlook for European property stocks.
The bank said that lower yields - to the extent they were expected - did not materialise in 2024 while engagement with a higher-for-longer environment in the fourth quarter has seen the sector de-rate into year-end.
"Lower yields are unlikely to come to the rescue in 2025 (here), but we find the sector trading at such a level that we do not need to incorporate lower yields to see average upside of 21%," it said. "We take on board the diverging top-down view for the Euro area and the UK, preferring residential over commercial property in the former and those with pricing power in the latter."
As a result, JPM upgraded Unite to 'overweight' from 'neutral' and cut the price target to 1,070.0p from 1,100.0p.
It downgraded LondonMetric to 'neutral' from 'overweight' and cut the price target to 226p from 235p after an "impressive" 2024 and relatively limited upside potential from here.
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