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Broker Tips: Lloyds Banking Group, BT, BAE Systems

  • JP Morgan downgrades Lloyds Banking Group
  • UBS downgrades BT Group to ‘Sell’
  • JP Morgan reiterates ‘Overweight’ rating for BAE Systems

JP Morgan Cazenove downgrades Lloyds Banking Group

JPMorgan Cazenove has downgraded its rating for Lloyds Banking Group LON:LLOY to ‘Underweight’ from ‘Overweight’ and dropped its target price from 56p to 42p. The broker sees further UK rate hikes as restrictive and the probability of a hard landing for the UK economy is seen as higher. Earnings per share for the FTSE 100 bank have been cut by “another 3-9% for FY24/25 and are now double digits below consensus,”.

JP Morgan is taking a cautious view on the outlook for net interest income over the next 12 months too, noting that the strong position and profitability of UK banks may lead to “increased political risks to earnings in the form of forbearance, pricing and windfall taxes, especially into 2024 with the election coming into view,”

Lloyds Banking Group shares were trading at 42.48p today, down 9% for the year to date and -2% over the last 12 months.

UBS downgrades BT Group to ‘Sell’

UBS has downgraded its rating on BT Group LON:BT.A from ‘neutral’ to ‘sell’ and lowered its target price from 146p to 120p. UBS has warned that rising interest rates could force the telecom company to cut its dividend in half. UBS analysts expressed their belief that the market has underestimated the impact of increasing interest rates and accounting changes related to BT Sport, which will affect free cash flow. The Swiss bank stated, “Without a dividend cut, BT Group will have to borrow more than £900 million per year over the next three years.”

To manage the risks associated with borrowing to fund both the dividend and pension deficit payments, especially with rising debt costs, UBS assumed that the dividend would be halved from 7.7p to 3.8.

BT Group shares were trading at 124.10p today, up 8% for the year to date and -35% over the last 12 months.

JP Morgan reiterates ‘Overweight’ rating for BAE Systems

JP Morgan has reiterated its ‘Overweight’ rating for BAE Systems LON:BA. despite speculation that recent events in Russia might lead to a quicker resolution to the war in Ukraine. The broker maintained a positive stance based on the belief that European, Australian and Japanese defence spending was at the start of a 5-10 year upcycle whilst recently won contracts suggest robust multi year growth for some of the major European Defence firms.

BAE Systems shares were trading at 926.20, up 7% for the year to date and up 12% over the last 12 months.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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