Broker tips: Rolls-Royce, Centrica, Whitbread, IHG, Base Resources

Barclays has raised its stance on engineering giant Rolls-Royce from 'equal weight' to 'overweight' after recent weakness in the share price.

"Rolls-Royce has derated ~10% in the past month (vs FTSE 100 -3%), in our view a function of de-grossing and longer cycle pressure/macroeconomics," the bank said in a research report on Tuesday.

This, it said, "presents a buying opportunity" ahead of the company's 28 November capital markets day, which Barclays said could be a "catalyst" event.

The bank also hiked its price target for the stock from 239.0p to 270.0p, representing around 30% upside from Monday's 202.0p closing price.

Citi reiterated its 'buy' rating on Centrica on Tuesday and lifted its price target to 180.0p from 155.0p, saying it was attractive relative to the sector.

"With one of the best balance sheets in the sector, delivering above sector average 8% yield via returns to shareholders (both dividends and buybacks), Centrica shares continue to look attractive in a sector-relative context," the bank said.

"We update our earnings and valuation to reflect the secured growth in flexible generation assets, which we estimate to deliver an aggregated portfolio IRRs of circa 10% with the support of capacity market payments."

Citi said that with retail churn continuing to be low and Ofgem consulting to increase bad debt allowance, it continues to see a good balance of risk and reward from the retail division.

The bank added that value creation from new secured only investments, lower risk retail earnings and falling liabilities led it to up the price target.

JPMorgan says Premier Inn owner Whitbread remains its top pick in the European hotels sector, as it downgraded its stance on IHG from 'neutral' to 'underweight'.

With earnings season now behind us for European Hotels, JPMorgan refreshed its forecasts for stocks in its coverage, keeping Whitbread as its "conviction 'overweight'", seeing around 40% upside potential to current prices with a price target of 4,600.0p.

"We continue to see WTB as best positioned – defensive offering (value/domestic), upside risk to estimates, F&B potential review, Germany optionality," the bank said.

JPMorgan cut its recommendation for IHG with its bull and bear case forecasts now suggesting 20% downside but just 7% upside to the current share price, respectively, as it cut its target price from 6,300.0p to 5,400.0p.

The bank said this is now the end of the earnings upgrade cycle for IHG, with revenue per available room metrics normalising, the company's share buyback ending shortly, and the valuation gap with US peers reducing significantly.

Canaccord Genuity moved its rating on Base Resources from 'buy' to 'speculative buy' on Tuesday as the group continues its transition from a producer to a developer.

Base Resources' quarterly production results saw mining rates come in "significantly ahead" of Canaccord's prior assumptions of 3.5m tonnes, at 4.1m tonnes.

However, heavy metals recovery from ore to concentrate was lower than its prior assumption, which led to heavy mineral concentrate production being in line with estimates at roughly 85,000 tonnes.

Canaccord, which also cut its target price on the stock from 40.0p to 35.0p, noted that the company has switched from continuous processing to campaign processing in order to maximise recoveries, which has led to "extended plant shutdowns" and MSP feed which has lagged production at roughly 72,000 tonnes.

"The nature of today's announcement highlights that results are likely to swing more rapidly from quarter to quarter than we have seen in the past. We note that from a balance sheet perspective, the company remains in a strong position, reporting US$77m in this update, and having previously shown ~US$45m in net receivables as of 30 June. The sales lag also means that there is likely a ~US$15-20m inventory build that will be unwound over the coming months."