Broker tips: WM Morrison, NatWest, U+I
Credit Suisse said on Tuesday that it believes WM Morrison Supermarkets could benefit from privatisation, as it downgraded its rating on the chain to 'neutral'.
Morrisons agreed to a £6.3bn takeover deal with a group of investors led by Fortress Investment Group at the weekend, just weeks after it turned down a £5.5bn approach from fellow US private equity firm Clayton, Dubilier & Rice.
But on Monday it emerged that fellow US investment firm Apollo Global was also mulling an approach, fuelling expectations of a potential bidding war.
Credit Suisse said: "We raise our target price to 254.0p to reflect Fortresses’ 252.0p-per-share bid-plus 2.0p per share dividend proposal.
"Given limited potential upside from current levels, and uncertainties related to finalisation of the deal, we downgrade the stock to 'neutral'."
Noting that the downside should be protected by the recommended price of 254.0p, it said: "There could be multiple bidders - CD&R, Fortress and Apollo - which could increase the price if shareholders do not vote in favour of the Fortress transaction.
Barclays upgraded NatWest shares to 'overweight' as it focused on the UK for investors to make gains from undervalued lenders.
Analyst Aman Rakkar also gave NatWest a 250.0p price target based on sector-leading capital returns ahead of consensus estimates.
After banning and then limiting bank dividends during the crisis the Prudential Regulation Authority is set to restore banks' freedom to make payments to shareholders, Barclays said. This makes UK banks more able to distribute capital than European peers, it added.
NatWest and other UK banks will also benefit from the release of expected credit loss provisions (ECLs). NatWest will write back £1.6bn, Barclays estimated.
Threats to Rakkar's predictions included the "unwelcome surprise" of the regulator extending restrictions on dividends and new variants of Covid-19 casting doubt on the release of ECLs. A major resurgence in mortgage competition would also worry investors, he added.
Analysts at Liberum raised their target price on regeneration developer and investor U+I from 100.0p to 140.0p on Tuesday after a 100-day review of its portfolio and strategy saw management present a strategy that will help deliver material returns to shareholders.
Liberum said U+I's refreshed management team had "drawn a line under the recent poor performance" and was now transforming the business.
"The 100-day review is complete and the action points will create a simpler, leaner business with a better quality portfolio over time. We can see a path to long-term value creation," said Liberum.
The analysts also stated that positive planning decisions at U+I, a corporate client of the broker, would be "crucial" to realising this.
"In the short term, a focus on turning non-core assets into cash should help close the share price discount to NAV; currently 40% to spot NAV," said Liberum, which also reiterated its 'buy' rating on the stock.