Broker tips: Ultimate Products, HSBC, Diageo
By Iain Gilbert
Date: Monday 03 Feb 2025
(Sharecast News) - Analysts at Canaccord Genuity lowered their target price on Ultimate Products from 182.0p to 130.0p on Monday, noting that "challenging UK conditions" had persisted.
Canaccord Genuity said Ultimate Products' H125 trading update showed that whilst it has continued to see "good growth in Europe", the performance in the UK has remained "challenging" due to weaker consumer demand for general merchandise.
The Canadian bank also noted that a softer-than-hoped peak trading performance by some of Ultimate Products' customers had also impacted short-term sentiment resulting in a moderation in the pace of forward orders.
As a result, Ultimate Products now expects FY25 revenues to be broadly flat year-on-year, with FY25 adjusted underlying earnings expected to be in the range of £14.0m-16m.0, short of consensus estimates of £20.6m, due to the one-off H125 effect of £2.0m additional freight costs.
"The challenging UK consumer backdrop has been well-documented, as evidenced by a number of the retail sector trading updates over recent weeks and the sharp fall in consumer confidence; however, we continue to believe that ULTP is well-positioned to benefit from an improved consumer environment in the UK as and when underlying macro conditions improve," said Canaccord, which has a 'buy' rating on the stock.
Deutsche Bank downgraded HSBC on Monday to 'hold' from 'buy' but lifted the price target to 910p from 830p after recent share price gains.
HSBC doesn't have to do a lot to maintain a healthy mid-teens return on tangible equity after many years of restructuring, Deutsche said.
"We expect any incremental restructuring will be relatively small and aimed at maintaining ROTE levels against a falling rate environment across a global cost base.
"If the scale of restructuring is contained, then we believe our capital return expectations could remain unchanged- one of the key attractions of the stock."
However, DB said that after a "substantial" increase in share price, the value "is no longer there".
Citi reiterated its 'buy' rating on Diageo on Monday as one of its core picks for 2025 as it said first-half results were on track to deliver.
"The weaker end to December trading in the US for the beer and spirit industry may limit Diageo's ability to beat H1 25E consensus expectations at the H1 print," it said.
"However, we believe in-line delivery should be sufficient to provide confidence that the earnings downgrade cycle has ended and that the earnings trajectory for Diageo (and the wider spirits industry) is trending toward stabilisation/positive territory."
Moreover, Citi said it expects the new chief financial officer to update Diageo's mid-term guidance framework and cut mid-term organic sales growth by 100 basis points to +4-6% as well as committing to operational leverage and improved free cash generation/conversion.
"Although we expect the shares may pause after the H1 print as the group faces tough comps in the US as it laps the launch of Crown Royal Blackberry, we reiterate our buy on Diageo as one of our core picks for 2025," the bank said.
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