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Broker Tips: Reckitt Benckiser, Centrica, Tullow Oil

  • Citigroup downgrades Berkeley Group to neutral
  • Jefferies upgrades Reckitt Benckiser Group to ‘hold’
  • Jefferies upgrades Centrica to ‘buy’
  • Jefferies raises Drax to ‘buy’
  • Barclays restarts coverage of Tullow Oil

Citigroup has downgraded Berkeley Group LON:BKG to ‘neutral’ (buy), dropping the target price by more than 21% to 3,654p (4,665p). Other brokers, including Jefferies and Berenberg, have already cut their targets for UK housebuilders to reflect expectations of an upcoming recession. It is difficult to gauge the extent of the recession as yet, but some brokers have estimated a 25% fall in volumes. However, looking ahead, this should allow for potential upside with those housebuilders capable of managing their build costs, cash discipline and capital returns. At close of trading yesterday, the stock was priced at 3,521p, a return of -26.3% YTD and -17.3% over 12 months.

Jefferies has upgraded Reckitt Benckiser Group LON:RKT to ‘hold’ (underperform), nudging up its target price to 5,620p (5,600p), after the company last week reported strong quarterly revenue growth despite a decline in volumes. Berenberg maintained its ‘buy’ recommendation but lowered its target price saying it is “still mispriced”, and to reflect its expectation that recessionary conditions in 2023, with consumers under continued pressure, will restrict growth. Deutsche also recommends the stock as a ‘buy’, with a target price of 6,750p (6,900p). At close of trading yesterday, the stock was priced at 5,750p, a return of -8.9% YTD and -3.5% over 12 months.

Jefferies has upgraded Centrica LON:CNA to ‘buy’ (hold), with a target price unchanged at 90p, describing the stock as “attractive amidst turbulent markets”. Centrica is attractive because of its free cash flow generation and balance sheet strength at a time of a rising cost of debt. The bank’s analysts are also expecting the UK government to publish details on a revenue cap or a windfall tax in the coming weeks, which would limit the power price increase. Barclays raises Centrica target price to 144p (121p) with an ‘overweight’ rating. At close of trading yesterday, the stock was priced at 77.9p, a return of 8.2% YTD and 26.8% over 12 months.

For similar reasons, Jefferies has also raised Drax LON:DRX to ‘buy’ (hold) but dropped the target price by 25% to 600p (800p). Like Centrica, Drax is important to UK supply security, and its strong balance sheet makes it “relatively insulated from the effects of the rising cost of debt, with negligible amounts of refinancing risk”, and with “healthy levels of dividend cover and capex headroom”. Barclays has slashed the Drax target price by 30%, to 820p (1,170p), while reiterating its ‘overweight’ recommendation. At close of trading yesterday, the stock was priced at 540p, a return of -10.7% YTD and 0.3% over 12 months.

Barclays has restarted coverage of Tullow Oil LON:TLW with an ‘overweight’ recommendation and a target price of 67p, after news that the proposed all-share merger with Capricorn Energy LON:CNE had been called off. Jefferies’ analysts had downgraded Tullow to ‘hold’ when the news first emerged last month, saying there was little prospect that Tullow would increase production or benefit from a strengthening gas price. Berenberg has a ‘buy’ rating on Tullow stock, with a target price of 90p and JP Morgan Cazenove an ‘overweight’ rating with a target price of 83p. Barclays also restarted coverage of Capricorn with an ‘equal weight’ rating and a target price of 242p. At close of trading yesterday, the stock was priced at 44.6p, a return of -3.9% YTD and -3.6% over 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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