Broker tips: Barclays, Standard Chartered, Virgin Money, Redrow, Crest Nicholson, Bellway, Shell
Deutsche Bank increased its share price targets for the UK's banks and named Barclays, Standard Chartered and Virgin Money as its top picks with a wave of bad loans looming.
UK banks will struggle to make efficiency gains in 2021 because of the cost of collecting a surge in non-performing loans and Covid bounceback loan expenses, Deutsche analyst Robert Noble said.
The German bank added that this environment would have varying effects on banks' results.
"Barclays, Standard Chartered and Virgin Money are more prescriptive and conservative on guidance and need little by way of efficiency gains to avoid forecast downgrades," Noble said, adding that consensus expectations at rivals appeared "more difficult to achieve".
Noble recommended buying Barclays shares and upgraded his price target to 165.0p from 135.0p and also kept his 'buy' rating on Virgin Money, raising his price target to 150.0p from 105.0p.
He also upgraded Standard Chartered to 'hold' and increased his share-price target on the stock to 480.0p from 415.0p.
Bellway, Crest Nicholson and Redrow look particularly attractive as UK housebuilders profits start to recover from the Covid-19 crisis, Canaccord Genuity said.
After a strong recovery in the summer the sector is ending 2020 with good momentum and has shown it can operate well during lockdowns, Canaccord analyst Aynsley Lammin said.
Margins and returns will not reach pre-pandemic levels in 2021 but there is no reason why they should not do so in the medium term, Lammin said. Balance sheets are strong and dividends and dividends are expected to restart in 2021.
"We expect 2021 to be a year of significant profit recovery with volumes being much closer to normalised levels and pricing firm," Lammin said.
He picked Bellway, Crest Nicholson and Redrow as the best growth prospects among midsized builders.
"Rising unemployment, as well as a tightening mortgage market and the potential impact on confidence and demand, remain the key risks, but we also expect government policy to be supportive and reactive if necessary," Lammin said.
JP Morgan upgraded Royal Dutch Shell shares to 'overweight' and increased its price target on the oil company as it took a positive view of the UK oil sector.
The investment bank increased its rating on Shell shares from 'neutral' and upped its price target to £17 from £16 as it predicted an oil "supercycle on the horizon", with demand likely to rebound as vaccines to prevent Covid-19 stem the pandemic.
JPM also highlighted that the pandemic had prompted big oil companies to rebase their dividends and accelerate plans to move into green energy.
"While oil demand's rebound led by new vaccines is likely to be 'bumpy' owing to varying degrees of penetration rates in emerging markets, out commodities oil outlook models global consumption almost back to pre-2019 levels in 1H22," Christyan Malek and colleagues wrote in a note to clients.
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