Broker tips: British Land, Land Securities, Pennon, United Utilities, SSE

by | Jun 22, 2021

JP Morgan upgraded British Land and Land Securities to ‘overweight’ on Tuesday, supported by a prediction that retail property values were recovering.
Analysts’ consensus for a 3% drop in British Land’s net asset value is too gloomy, JP Morgan said, predicting a 3% increase. The bank increased its price target on British Land shares to 600.0p from 550.0p, including 22% upside, and upgraded from ‘neutral’.

UK retail property had its first month of capital growth in more than three years in May, the bank noted, with prospects for the retail sector looking up as people plan to visit malls and retail parks.

“Supporting the upgrade is our belief that UK retail – after a multi-year decline – is turning the corner,” analyst Neil Green wrote in a note to clients. British Land, whose properties include Sheffield’s Meadowhall shopping centre, is also set to start building its mammoth Canada Water development in 2021 after more than a decade of preparation, Green said.

JP Morgan also upgraded Land Securities from ‘neutral’ and increased its price target on the shares to 850.0p from 800.0p with 26% upside. The bank said the shares had underperformed other retail and office companies and that applying peer group multiples showed “significant upside” for the owner of Bluewater shopping centre.

“An unweighted average basket of London office stocks is up 16.6% in last six months, and a European retail basket is up 29.7%, while LAND shares haven’t moved (0.5%),” analyst Tim Leckie said. Landsec also has a favourable development pipeline and UK retail values are bottoming, he added.

Analysts at Deutsche Bank took a fresh look at the European utilities sector on Tuesday, downgrading Pennon and United Utilities from ‘buy’ to ‘hold’ and upgrading SSE from ‘hold’ to ‘buy’ as a result.

Focussing on the British names in its coverage, DB said the four UK regulated utilities had rallied “strongly” since their March lows, with gains of over 15%.

“Comparing the four stocks, National Grid and Severn Trent have much stronger RAB growth (>7% and c.4%, respectively in 2022/23) than Pennon and United Utilities (c.2%). While both trade on fair high premia to RAB (42% and 26%, respectively), the scope for strong value-creating growth could drive further upside,” said the analysts.

“For Pennon, having had more time to reflect, we continue to view its announced acquisition of Bristol Water as value-neutral. Our republished model incorporates its recent acquisition and prospective capital return, with scope for quite strong earnings growth over the next few years (EPS trending up to 70.0p by 2024/25).”

As far as SSE was concerned, the German bank stated it fit well into its strategy of looking for utilities with strong growth opportunities and established track records, although ones where “not too aggressive assumptions for value creation” were factored into share prices.

“We see a lot more near-term catalysts for SSE,” said DB, which also hiked its target price on the stock from 1,500.0p to 1,670.0p.

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