Broker tips: Genel, Centrica, Barclays

21st Feb 2024 15:01

(Sharecast News) - Jefferies upgraded Genel to 'buy' from 'hold' on Wednesday and lifted its price target on the stock to 100.0p from 85.0p, noting that the shares had been volatile of late as various media reports suggesting an imminent reopening of an Iraq-Türkiye export pipeline proved to be incorrect.

"Having initiated at 'hold', we now upgrade to 'buy', seeing re-opening risk as over-sold, and a solid balance sheet with net cash to remain above $100.0m throughout 2024 supported by local sales, even if exports do not restart," it said.

Jefferies said there are a number of catalysts this year that could impact Genel's share price - the resumption of exports via the Iraq-Türkiye pipeline; clarity on the recovery of $107.0m of Kurdistan Regional Government receivables, potential M&A activity, and a successful Miran and Bina Bawi arbitration result.

"While there may be upside to shares from catalyst successes, we believe long-term shareholder value is dependent on a resumption of pipeline exports and payments framework," it said. "This should allow for more certainty in the company cash flows and optionality for growth via M&A, which we believe is a key variable for E&P stock performance."

JPMorgan has maintained an 'overweight' position on energy and services company Centrica, saying the stock's current valuation was "undemanding" given recent weakness.

Centrica's shares have declined more than 20% since the highs of around the 170p mark last September, with the stock having fallen by 8% in the 2024 so far. That's despite beating company-provided consensus at both the earnings and net cash level at FY23 results last week, JPMorgan said.

"We believe that the weakness has been driven by positioning - many hedge fund investors were long the shares last summer - as well as lower earnings expectations from the buy-side as commodity prices have decreased," the bank said on Wednesday. "In our view, the current share price implies that Centrica's medium-term earnings will be 25% below guidance, and that the company will destroy over £1.0bn of value in future investments and growth capex. We continue to see Centrica as well positioned to deliver on its targets, without being reliant on elevated commodity prices, volatility or an accelerated energy transition scenario."

JPMorgan added that the stock trades at a multiple of under three in terms of an enterprise value-to-EBITDA valuation, and its 190.0p target price for the shares implies 43% upside, which was calculated assuming no value creation from the company's growth investments.

Meanwhile, with Centrica's current £1.0bn share buyback programme due to end this summer, JPMorgan said it sees scope for a further £500.0m "which could be a catalyst that drives a rerating".

Analysts at Berenberg raised their target price on banking giant Barclays from 240.0p to 270.0p on Wednesday, stating the stock's current level of returns remains "chronically undervalued".

Berenberg noted that Barclays plans to distribute more than £10.0bn of capital to shareholders during 2024-26, equivalent to roughly 40% of the bank's market capitalisation, even before including the roughly £1.8bn of capital distributions announced at its full-year 2023 results on 20 February.

The German bank also said the bank was not "shrinking to victory", with revenue targets for 2026 implying roughly £4.7bn in revenue growth versus 2023.

Berenberg stated that its 2026 revenue guidance was approximately £1.6bn below Barclay's own target, enabling about 11% FY 2026 return on tangible equity versus guidance for more than 12%. This is something the analysts, who reiterated their 'buy' rating on the stock, think remains "chronically undervalued".

"Barclays' shares rose by 9% following its FY 2023 results on 20 February. Yet this still implies a de-rating versus our EPS upgrades of more than 10%. While our FY 2026E RoTE of circa 11% is circa one percentage point below guidance, this level of return is poorly reflected in Barclays' valuation, on 0.4x TBV," said Berenberg.