Broker tips: IMI, Lloyds, RBS, Barclays, CYBG, Metro Bank
Analysts at Goldman Sachs upgraded its recommendation for shares of flow control specialist IMI to 'buy' on Wednesday, citing margin improvements and industry consolidation.
Goldman noted that IMI shares seemed to have "fallen from favour" with investors, with the shares down 4% year-to-date compared to the average growth of 10% seen across the sector.
The New York City-based investment bank also highlighted the fact that IMI was trading on near-trough price-to-earnings ratio and enterprise value/EBIT multiples.
"We believe consensus underestimates the room for growth acceleration/margin improvement in one-half of IMI's sales," said Goldman, which added that investors seemed to be "overly concerned on deterioration in the other".
Despite headwinds looking likely to persist through 2019/20, Goldman said those concerns were "overdone" and believed that the market had priced in a 15%-7% decline in OSG over the next 12 months. Goldman was expecting no decline at all and noted there were pure-plays with greater exposure, such as Bodycote and SKF.
Goldman, which raised its price target on IMI to 1,180p from 950p, also forecast 130 basis points of EBIT margin expansion by 2021 and raised the company's M&A rank from 2 to 1, pointing to its relative size and greater value unlocking potential.
"IMI trades at a 15% discount to the sector on consensus 12m fwd EV/EBIT (6% historically) despite an absence of major structural challenges, above-sector returns, good cash conversion and a generous and progressive dividend," said Goldman.
Morgan Stanley slashed its target prices for several of the UK's largest lenders, as political uncertainty pushed out expectations for hikes in Bank Rate to the back half of 2020, which together with a flattening yield curve meant that consensus estimates for their net interest income were "too optimistic".
With PM May's resignation and the shift to more polarised positions in the European election, MS' economists said they saw "reduced scope for a compromise Brexit" and now expect "a more binary outcome".
"We see up to 10% risk to numbers in domestic UK and we delay RBS share buybacks. With room to cut costs and yield, Lloyds remains our top pick," MS said.
The investment bank cut its target price on RBS from 300p to 270p, for Lloyds from 78p to 70p, for Barclays from 200p to 180p, for CYBG from 235p to 200p and for Metro Bank from 830p to 700p.
In the case of RBS, its share buybacks were now seen being delayed until 2020.