Broker tips: NatWest, Pensionbee, Greggs

Shore Capital reiterated its 'buy' rating on bank NatWest after a forecast-beating first quarter but said it sees the least amount of upside potential in the stock compared with the wider banking sector.

NatWest reported a pre-tax profit of £1.33bn for the first three months of the year, down 27% year-on-year but £68.0m ahead of consensus forecasts, representing a beat of 5%. This was due to positive changes in net interest income, impairments, and litigation and conduct charges. Reported earnings per share of 10.5p beat consensus by 9%, tangible net asset value per share of 302.0p beat consensus by 9.0p, while reported return on tangible equity of 14.2% beat consensus by 1.3 percentage points.

However, the fact that NatWest's board has chosen to keep full-year guidance unchanged may "disappoint investors" following a recent strong run in the shares, said Shore Capital, as it pointed out that the stock had surged 32% so far this year – outperforming the FTSE All-Share Index by 28%

Shore Capital's fair-value estimate for the shares was 315.0p, which implies just 9% upside from Thursday's price – though Friday morning's 3.4% gain to 299.7p reduces that somewhat.

"NatWest currently offers the least upside to fair value of the large UK banks. We retain a 'buy' recommendation for now, but we will review the appropriateness of this in light of any share price reaction and further commentary on the results call," Shore Capital said.

Jefferies hiked its target price for Pensionbee by more than 60%, from 107.0p to 172.0p, after first-quarter results came in ahead of expectations, saying the pension provider has a large market opportunity to expand in the US.

Assets under administration came in ahead of forecasts in the first quarter, both on flows and market movement. "Costs were below our expectations too: marketing, money management and staff costs were all lower than we expected. Both higher AUA and lower costs have positive effects on our earnings forecasts," Jefferies said.

The broker, which reiterated its 'buy' rating on the stock, now expects Pensionbee to swing into the black this year, forecasting an adjusted underlying earning of £400,000, compared with previous projections of a £3.4m loss. What's more, Jefferies said its forecasts "remain quite conservative".

"Perhaps the biggest upside scenario is fast progress in the USA though. Pension funds there have assets of c.$27tn, or c.15x the size of the UK market [...] With support from their US-based partner, we expect little marketing cost drag from the expansion in America, and therefore a positive contribution should come quite soon," the broker said.

However, without detailed guidance and goals from the company, Jefferies has not made specific assumptions for the US business yet.

Analysts at Berenberg raised their target price on bakery chain Greggs from 3,550.0p to 3,990.0p on Friday as it noted that customer appeal had broadened as its market share was expanding.

Berenberg noted that Greggs has made "encouraging progress" across multiple growth initiatives, which were now showing signs of success as the company's market share grows to an all-time high and benefits from a broader customer appeal.

The German bank, which reiterated its 'buy' rating on the stock, stated that Greggs has shown "resilient top-line growth" as it increasingly benefits from the introduction of evening sales and the expansion of its store estate, as well as delivery and loyalty/app improvements.

"We update our earnings forecasts to reflect slightly higher rates of revenue growth, which are more than offset by an increase in cost growth estimates. These changes reflect the company's FY 2023 results (reported on 5 March), and drive a respective 4% and 5% decline in our FY 2024E and FY 2025E adjusted-PBT forecasts versus our prior expectations," said Berenberg.

"We model LFL revenue growth of 8.5% yoy in H1 2024E and assume pricing equal to cost guidance (c4-5% yoy), before a slight reversion of revenue growth in H2 as pricing moderates. We increase our cost growth estimates to model flat profit before tax margins across FY 2024E to FY 2025E given the emergence of heightened labour costs, coupled with investment relating to newly introduced sites."