Broker tips: Centrica, Metro Bank, FTSE 100 'top ten' sells

Analysts at Credit Suisse downgraded energy and services outfit Centrica to 'neutral' on Wednesday, expecting a rough time for the firm's share price throughout February.

In addition to stripping it of its 'outperform' rating, the Swiss bank also dropped its target price on Centrica from 180p to 155p.

Credit Suisse's change of heart was principally a result of the roughly 8% price rise seen in Centrica's shares of late, with the analysts now anticipating a 9% drop in earnings per share in 2018 due to the weaker UK home and lower hydrocarbon production volumes.

"Our TP falls to 155p (from 180p) reflecting a lower value for British Energy, as we model the CO2 tax being halved to £9/tn from April 2021, and a higher pension deficit."

CS noted that price caps were also still likely to be contentious - with prices for around 65% of households covered by caps, which themselves were set to rise by just 8% on 1 April.

The analysts also pointed out that Centrica's sale of British Energy - which CS said the firm "needs" to help fund its pension deficit - was "likely to prove difficult".

"We believe the standstill in the capacity market and uncertainty on the CO2 tax-which drives nuclear profitability - will both make a sale of the 20% stake in British Energy - worth circa £900,000 - unlikely in 2019."

Metro Bank is now "increasingly likely" to go back to the City with its begging bowl, some analysts suggested after the lender's surprise trading update on Wednesday.

Providing an update on fourth-quarter trading, the bank shocked investors and analysts with adjusted profits that grew much less than expected and news that risk-weighted assets ballooned £900m in the quarter, or 12%, as it was forced to make some adjustments to its model. This then led to a quarter-on-quarter decline of 330 basis points in total capital.

As management did not provide a figure for its CET1 ratio, Goldman Sachs calculated that based on the total capital ratio provided 15.8% and assuming unchanged Tier 2 instruments, the CET1 ratio was around 13% at the year-end - a decrease of 270 basis points.

Directors did reveal continued pressure in mortgage pricing, however, but made no comments on capital plans, saying they will provide an update on the outlook at full-year results on 27 February.

Expecting the CET1 ratio to fall until at least 2020, broker Panmure Gordon said that "we now believe that another equity raise is increasingly likely if management adhere to their FY2020E targets".

Jefferies analysts were more positive, though said the trading update "poses more questions than answers - notably on capital planning".

Elsewhere, analysts at AJ Bell found that the ten FTSE 100 stocks analysts most often rated a ‘buy’ lost an average of 17.3% in 2018, while the index lost 12.5%.

Only one of top ten, Shire, made a positive return, following a £46bn takeover bid from Japanese drug maker Takeda. The other most recommended stocks included British American Tobacco, venture capitalist 3i, travel firm TUI and takeaway app Just Eat.

In contrast, the ten stocks most regularly ranked as a ‘sell’ by analysts beat the benchmark index, losing 10.1% on average, although only one – publisher Pearson – recorded share price gains.

Russ Mould, investment director at AJ Bell, said investment banks and broking firms had failed to identify last year’s winners and losers.

AJ Bell also published the ten stocks with the highest percentage of ‘buy’ ratings at the start of the current year. They included publishing and events group Informa, healthcare provider NMC Health, commodity specialist Glencore, 3i and wealth manager St James’s Place.

The ten stocks with the highest percentage of ‘sell’ ratings at the start of 2019 include miner Antofagasta, Marks & Spencer, Rolls Royce, Next, Pearson and Standard Chartered.