Broker tips: Lloyds Banking Group, Natwest, Hikma Pharmaceuticals

by | Nov 1, 2021

Analysts at RBC Capital Markets raised their target price on retail bank Lloyds Banking Group from 51.0p to 54.0p on Monday. Following the company’s third-quarter results.
RBC stated it had increased 2023 pre-tax profits estimates for Lloyds by 6%, driven by an increase in its net interest income estimates due to higher rate expectations. However, it did also note that this would be “partially offset” by lower operating income following the implementation of IFRS17 in 2023.

The Canadian bank noted that its numbers now see it assuming that Lloyds will announce a restructuring programme alongside its 2021 strategy update and led it to include £1.5bn and £1.0bn in its model for restructuring in 2022 and 2023, respectively.

RBC, which reiterated its ‘outperform’ rating on the stock, highlighted that it was now roughly 10% above consensus on a pre-tax profit level with its 2023 estimates and approximately 20% above consensus on three-year total shareholder returns.

Analysts at Berenberg slightly raised their target price on retail bank Natwest from 240.0p to 250.0p on Monday, stating while the group was “fine today” it would be “better tomorrow”.

Berenberg said the “materiality and persistence” of Natwest’s net interest income prospects dwarfed “more modest and short-term weakness” in its non-interest income.

The German bank highlighted that it felt this strength was “underappreciated”, leading it to place its full-year 2023 net interest income expectations 5% ahead of consensus estimates.

“This strength is supported by the bank’s progress towards reducing costs and its strong capital returns of circa 11% per annum (which, at the margins, have become even stronger),” said the analysts.

Berenberg, which also reiterated its ‘buy’ rating on the stock, added that with Natwest trading at 0.8x its tangible book value for a full-year 2023 estimated return on tangible equity of 10%, the stock was presently undervalued.

Analysts at Citi reiterated their ‘buy’ stance for shares of Hikma Pharmaceuticals ahead of the company’s trading statement due out later in the same week.

Citi said that September data from IQVIA pointed to the business trending ahead of Hikma’s own guidance, adding that it now sees the possibility of a 2-3% revenue upgrade alongside the trading statement.

Furthermore, Citi said its recent meeting with the outfit’s chief executive officer had highlighted the potential in its injectables unit’s pipeline, as well as for its US generics and branded divisions.

“Hikma offers robust organic growth, earnings momentum, balance sheet optionality, and growing pipeline promise,” they argued.

The bank estimated that Hikma’s sales and earnings per share would grow at a compound annual growth rate of 6.0% to 7.0% over 2021-26, with upside earnings risk and an attractively skewed bull/bear net present value range.

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