Broker tips: SSE, Restore, Big Yellow, Essentra

RBC Capital Markets upgraded SSE to 'outperform' from 'sector perform' on Tuesday and lifted its price target on the stock to 2,050.0p from 1,825.0p as it pointed to clarity over windfall taxes.

"SSE, like much of the UK utility space, has been buffeted by macroeconomic concerns and risks around government intervention for much of 2022," it said.

"We now have clarity on windfall taxes, and think investors should now refocus on SSE’s attractive business mix and long-term growth prospects aligned to the energy transition."

RBC said the net impact of higher power prices and inflation, alongside windfall taxes, result in its earnings per share forecasts going up around 15-30% over the next three years.

Analysts at Canaccord Genuity lowered their target price on mission-critical services provider Restore from 645.0p to 590.0p on Tuesday, stating that cost impacts had somewhat offset building momentum.

Canaccord Genuity said Restore's Tuesday morning update "encouragingly" showed momentum in activity levels, with the group continuing to build and win new contracts.

However, Restore also revealed it had seen "significant cost inflation and rising interest expense", as well as a tightening in upstream IT asset rotations which resulted in slower-than-expected sales from its technology division.

"We expect price rises and cost reductions to largely mitigate the impact to EBITDA, while our estimates see adjusted pre-tax profits reduce by 9%/12%/7% FY22E/23E/24E from higher interest costs," said Canaccord, which reiterated its 'buy' rating on the stock.

Peel Hunt upgraded its rating on Big Yellow on Tuesday on the back of strong interim numbers.

The investment bank, which changed its recommendation for the stock to 'hold' from 'reduce', also trimmed its price target for the self-storage provider to 1,200.0p from 1,300.0p.

It said: "Big Yellow once again reiterated its confidence [in its business model] and noted that construction cost concerns are now easing. Combined with a correction in land prices, this should be beneficial to future development.

Overall, Peel Hunt said this was once again "a strong set of results" and that it expects to upgrade its earnings per share and dividend per share forecasts by around 5% to 57.5p and 46.0p, respectively.

"The shares trade on a 20x PE and offer a 3.9% dividend yield, and following an approximate 30% decline in the share price in the year-to-date, we upgrade to ‘hold’ while lowering our target price," added the analysts.

Analysts at Berenberg raised their target price on chemicals group Essentra from 275.0p to 295.0p on Tuesday following the firm's capital markets day last week.

Berenberg said Essentra's capital markets day had presented the company as "a pure-play components platform" that has "a strong position in a fragmented market", as well as having the potential to act as a consolidator.

The German bank believes that Essentra should successfully execute a roll-up strategy, but also reckons that the company could be the subject of a take-private deal itself - once it has paid out its "large" £150.0m dividend, announced on the back of the disposal of its filters business.

"In any case, we were positively impressed by the 'New Essentra'," said Berenberg, which reiterated its 'buy' rating on the stock. "Our new 295.0p price target values Essentra at 11x EV/EBITDA, on par with its largest peer RS Group."