Broker tips: BT, Drax, GlaxoSmithKline
Analysts at Deutsche Bank lowered their target price on telecommunications giant BT from 140.0p to 125.0p on Monday, stating that risks were "inflating not abating".
Deutsche Bank said its downgrade of BT to 'sell' in June "could have been better timed" as the shares almost immediately ratcheted to above 200.0p on news that Patrick Drahi had acquired a 12% voting stake.
However, the analysts stated that BT shares had since fallen to "within a whisker" of its then target price of 140.0p.
"Our concern was infrastructure competition which could see Openreach broadband lines fall by 4-6.0m in a base to worse-case overbuild scenario," said DB.
"Including the risk to retail (business-to-business and business-to-consumer), we estimated that alt-network build (including from Virgin Media O2) could take group EBITDA down by £1.0-1.6bn, offsetting any boost from circa £1.0bn capex reduction when BT's 25.0m FTTP project comes to an end by Dec 2026."
Analysts at Jefferies upgraded earnings estimates for Drax on Monday, arguing that the energy firm was "well-placed" to benefit from soaring power prices.
Jefferies, which also upped to its rating on the stock to 'buy' from 'hold' and increased its price target from 280.0p to 660.0p, said as hedges roll-off over 2022-2023, Drax was now well-placed to capitalise on market tightness, which even if it abates, still implied "material consensus upside".
It continued: "We expect Drax to benefit significantly from higher power prices. UK power prices are at all-time highs, driven by the tight gas market in Europe.
"Heading into 2022, we expect prices to normalise somewhat but to remain above historical levels, and we forecast that Drax achieves 2022 and 2023 UK power prices of £61/MWh and £70/MWh respectively, including hedging."
"With this, and a broader refresh, we update our estimates for Drax, increasing our 2021 full-year earnings before interest, tax, depreciation and amortisation +2% to £379m, now +2% versus consensus, and increase full-year 2022-23 EBITDA by 45% on average.”
Jefferies also argued that Drax was likely to benefit as the UK government looked to pivot away from fossil fuels.
Analysts at Berenberg reduced their target price on GlaxoSmithKline from 1,625.0p to 1,540.0p, but stood by their 'buy' recommendation on the shares, pointing out that the company's exit from its consumer healthcare division was now closer and arguing that the stock remained "fundamentally undervalued".
Berenberg also said it saw stasis on returns from GSK's investments in research and development and estimated that the company would generate a return from R&D investment of 6%, which was below its 8% cost of capital and in line with the previous two historical cohorts.
"Time is running out for management to deliver positive pipeline progress. Without Consumer Healthcare from mid-2022, "New GSK" will be increasingly exposed to its pharma R&D fortunes," they added.
On the flip side, the pharmaceutical giant's pipeline had not played out as hoped in 2021.
Among the key pipeline readouts that still lay ahead in 2021 were Blenrep and GSI combination data and full phase three data for daprodustat.