Broker tips: Hammerson, British Land, Moneysupermarket, UK construction

Morgan Stanley lifted its rating on Hammerson on Monday but downgraded Landsec as it took a look at property stocks.

Hammerson was upped to ‘overweight’ from ‘equalweight’ and the price target lifted to 36p from 27p. The bank downgraded Landsec to ‘equalweight’ from ‘overweight’ and cut the price target to 650p from 750p.

MS noted that Hammerson has made significant restructuring progress and said it sees value in the shares at current levels. It added that Landsec's net asset value valuation gap to British Land is now at all-time wides - around 10pp which has never occurred over the last decade.

"We attribute this relative performance differential to British Land's LTV increase at the recent FY results," it said.

It also pointed to the fact that British Land has stated it will ‘continue to recycle out of mature assets’ and said it assumes assume this will mitigate the LTV soon enough.

More generally, the bank said: "UK balance sheets screen as sufficiently capitalised in the context of modest asset appraisals, while NAV valuation for many is close to or at all-time lows.

"We are alive to the fact that broader UK exposure and offices as a sub-sector are out of favour, but at current valuation the risk reward is compelling in our view.

"On the flipside, we see good reasons for sustained caution on Swedish stocks (Castellum, Fabege), retail REITs (Unibail, Klepierre) and highly levered names (Aroundtown)."

JP Morgan has cut its stance on real estate giant British Land from 'overweight' to 'neutral' and cut its target price for the shares from 505p to 410p.

"Our new base case for British Land includes City values falling 20% this year," JP Morgan said in a research note on Monday. "This puts our FY24 net asset value forecast 6% below consensus and sets our new price target of 410p."

The bank pointed out that while its new, lowered target price still implies around 25% upside to current prices, though is still less than lower-levered, West End office-focused developers like Derwent London and Great Portland Estates – both of which it rates as 'overweight'.

"Crucially though, sentiment and the value outlook for the City is weak, with British Land’s exposure here standing out (versus closest peer Land Securities), as does [a loan-to-value] at 36%," JP Morgan said, compared with 31.7% at Land Securities.

The bank predicts that British Land will miss net asset value (NAV) forecasts at its results for the first half ending 30 September on 13 November. And if the recent weakness in UK values seen in the company's fiscal first quarter continues to the end of its financial year (end-March 2024), then full-year NAV might miss current consensus estimates by 9%.

"Valuation isn’t stretched but catalysts for a stock-specific re-rating look hard ahead of a turnaround in City offices."

RBC Capital Markets lifted its price target on Moneysupermarket on Monday to 300p from 290p on higher long-term margin forecasts, as it argued the shares are attractive after a de-rating.

The bank, which rates the stock at ‘outperform’, noted that the shares have de-rated by around 15% over the last month.

"We believe this reflects the market's lower confidence in its earnings beyond this year, given uncertainties around energy switching," it said.

"Our bottom-up forecasts suggest the strength of its high-margin insurance business can offset a lack of meaningful energy switching revenue next year. Additionally, we remain confident that MONY is well-positioned for when energy switching returns, presenting upside to our FY24 forecasts.

"Therefore, we view this as an attractive entry point for MONY, trading on a CY24 estimated free cash flow yield of 7%."

RBC said the de-rating was unjustified, "in light of the company's favourable positioning in the current environment, the strength of its motor and home insurance businesses and its ability to drive margin improvement".

Broker Berenberg expects the UK construction market to flatline in 2024 before returning to growth, and highlighted a number of key buying opportunities for investors.

"While construction markets remain challenging, we think we are close to the trough in most markets and while we do not anticipate any material recovery in 2024, we think this backdrop presents plenty of attractive investment ideas," the broker said.

Berenberg highlighted six key 'buys' among UK-listed construction stocks: Berkeley (5,100 target price) on the strength of its order book, forward sales position and cash generation approach; Grafton (1,050p target price) on its capital allocation and investment opportunities across Europe; Genuit (400p target price) due to the growing demand for sustainable construction products; Howden (870p target price) with its expanding depot network, improving distribution and international potential; Volution (500p target price) with regulatory developments expected to drive demand for its energy-efficient ventilation products; and Hill & Smith (2,000 target price) on its potential to expand its North American operations.