Broker tips: Bunzl, Barclays, Science Group
By Michele Maatouk
Date: Monday 13 Jan 2025
(Sharecast News) - Citi upgraded Bunzl on Monday to 'buy' from 'neutral' as it said it was a hedged sector investment.
The bank had downgraded the shares to 'neutral' in December last year on valuation grounds, warning about deflationary headwinds weighing on organic growth and margins.
"Since then the stock has underperformed the market by 8%," it noted on Monday.
"Given increased market uncertainty on the back of rising bond yields, we upgrade our rating back to buy, whilst maintaining our target price, with ETR of circa 15%."
The bank has a 3,700p price target on the stock.
Shore Capital reassessed its coverage for the UK banking sector in light of recent developments in the bond and currency markets, highlighting its preference for internationally focused lenders.
The broker reiterated 'buy' ratings for Barclays, HSBC and Standard Chartered, but kept 'hold' recommendations on domestic peers Lloyds and NatWest.
The recent rise in bond yields and scaling back of interest-rate cut expectations in the UK will feed through to higher retail and wholesale borrowing costs, which could be detrimental to credit demand and credit quality, the broker said. However, it said that UK banks' historical cautious approach to underwriting and focus on prime lending should mean that balance sheets are "well protected".
"The market is currently focused on the sharp rise in bond yields (which is not just a UK phenomenon) along with the strengthening of the US dollar versus most other currencies (including sterling)," Shore Capital said in a research note.
"Overall, we believe the environment currently favours those banks with international exposure relative to the domestically focused names."
For the 'buy'-rated banks, Shore Capital's fair-value estimates indicate 34% potential upside at Barclays (345p), 24% upside at HSBC (990p) and 21% upside at Standard Chartered (1,245p).
Meanwhile, just 15% potential upside is seen at Lloyds (61p) and a lesser 6% at NatWest (395p).
Canaccord Genuity started coverage of Science Group with a 'buy' rating and 758p price target as it pointed to 14 years of strong shareholder returns.
Canaccord said Science Group has an impressive and consistent track record of delivering a combination of organic and disciplined inorganic growth with minimal shareholder dilution.
"This track record, alongside management's fixation on cash generation from operations, has delivered a 12% EPS CAGR since FY10 and attractive shareholder returns, with the share price increasing more than 10x since a 40p placing in 2010 and adjusted operating profit converting into real cash flow," it said.
"We view the new debt facilities as providing existing investors with yet another opportunity for further upside and an opportunity for new investors to ride the next wave.
"Our sum-of-the-parts valuation of Science Group's operating businesses implies material upside to the current market cap.
"We contrast Science Group's 8.3x FY24E EV/EBIT multiple (CGe) with the recent PE-backed acquisitions of Alpha Financial (14.5x) and RPS Group (26.7x) in Consultancy."
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