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Broker Tips: BAE Systems, Marks & Spencer, Antofagasta

  • Berenberg upgrades BAE Systems
  • Bank of America Merrill Lynch upgrades Marks and Spencer
  • Citigroup upgrades Antofagasta to ‘Buy’

Berenberg upgrades BAE Systems

Berenberg has upgraded defence contractor BAE Systems [LON:BA.] to ‘Buy’ from ‘Hold’ and raised the target price to 1,170p from 1,050p

The bank has seen signs of a pivot in order to pursue strategic acquisitions noting “the proposed $5.6bn acquisition of Ball Aerospace has signalled a greater willingness to pursue M&A, to open up new growth markets”. Berenberg commented that the medium-term financial outlook provided for Ball Aerospace is conservative and “further earnings accretive bolt-on acquisitions are likely, given the backdrop of steadily growing free cash flow over our forecast horizon.”

Berenberg forecasts that BAE will distribute 88% of its cumulative free cash flow to shareholders through dividends and share buybacks and “strong order intake is also increasing outer-year visibility and gives it confidence that we are entering a step-change in organic growth over the next five years.”

The bank concludes that “the shares offer good value, in our view, trading on 15.7x 2023 price-to-earnings for a 10% EPS CAGR over 2023-27.”

BAE Systems shares were trading at 984.6p at the time of writing, up 14% this year and up 20% over the last 12 months.

Bank of America Merrill Lynch upgrades Marks and Spencer

Bank of America Merrill Lynch has upgraded Marks & Spencer [LON:MKS] to ‘Buy’ from ‘Neutral’ and raised its target price to 300p, up from 197p, The bank noted that despite the stock’s recent outperformance, the FTSE 100 retailer remains undervalued with potential for increased earnings revisions, suggesting “Our revised EPS estimates are 5% above consensus over FY24-27E supported by higher margin expectations,”

The Bank stated that “If we apply peer multiples to M&S Food, current shares imply an 8x FY25E P/E for the Clothing & Home business – too low in our opinion considering market share gains and better brand heat.” The note also pointed out that real wage and disposable income growth has inflected, and “consumer confidence is recovering” which could be “further supported by the recent pivot in UK interest rate expectations.” However, the note cautioned that a “softening labour market and elevated mortgage rates remain key risks”

Marks & Spencer shares were trading at 224.70p, up 77% this year and up 119% over the last 12 months.

Citigroup upgrades Antofagasta to ‘Buy’

Citigroup has upgraded Antofagasta [LON:ANTO] to ‘Buy’ this week from ‘Neutral’. The FTSE 100 Mining giant is expected to see a significant recovery in copper production this year from Los Pelambres, adding 26% to its estimated underlying earnings (EBITDA) over the next two years. In August, Antofagasta saw half year revenues up by 14% against the comparative thanks largely to higher copper prices. Pre-tax profits were up by 12.5% and an interim dividend of 11.7 cents was declared, in line with the company’s agreed distribution policy.

Antofagasta shares were trading at 1,347p today, down 13% this year and up 17% over the last 12 months.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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