Broker tips: SSE, Capital & Counties, HomeServe

Analysts at Berenberg upgraded energy firm SSE from 'hold' to 'buy' on Thursday, stating they now see "a buying opportunity".

Berenberg said the upgrade reflected its "increasing confidence in" and increased forecasts for SSE's renewables and networks businesses, both of which it noted were key for the energy transition.

The German bank also noted that it feels current high and volatile energy prices highlighted "the value and importance" of the group's flexible generation business and added that recent acquisitions reinforced this view.

"We raise our forecasts for the business to reflect the increase in its investment in renewables and networks. Our EPS forecasts increase by 34%/29%/21% for 2022E/2023E/2024E respectively. The risk/reward balance also looks attractive, with our blue-sky/black-sky valuation range giving 37% upside to 15% downside," said the analysts.

Berenberg also hiked its target price on the stock from 1,690.0p to 2,200.0p.

Citi upgraded Capital & Counties on Thursday to 'buy' from 'neutral', although it said the rating change had nothing to do with the merger with Shaftesbury announced earlier in the week.

The bank said its reinstated price target of 246.0p offers around 61% total return potential, based on its view that despite uncertainty and a potential spending squeeze, rate rises, and recessionary risks causing further negative sentiment, it estimates that the West End will recover and said net asset value growth was likely to be "strong" over its five-year forecast.

"Buying opportunistically through the potential negative sentiment reflected in our 2023E NAV decline is likely to be profitable looking out the other side," said Citi.

Citi pointed that its recommendation was unrelated to the announced potential merger with Shaftesbury, where it estimates a relatively neutral impact on both CapCo and Shaftesbury NAV but with earnings per share accretion likely for both.

RBC Capital Markets downgraded HomeServe to 'sector perform' from 'outperform' on Thursday as it argued that investors should take some profits while they wait to see if a takeover bid from Canada's Brookfield Asset Management emerges.

The bank, which cut its price target on the stock to 1,200.0p from 1,300.0p, said that while it continues to be a fan of HomeServe's growth potential, since it set its previous target, discount rates have increased and the consumer looks set to be more pressured.

"We see a bid from Brookfield as likely but we'd be surprised if it was more than 10% ahead of the current price, whilst there is nothing on the table yet," it said. "We thus think investors should take some profits."

On Wednesday, HomeServe shares surged after Bloomberg reported that Brookfield was nearing a takeover deal for the home repairs group. It was understood the deal could value HomeServe at about $5.0bn and that an agreement could be reached in the coming days.

Brookfield announced on 24 March that it was in the early stages of considering a possible offer for HomeServe. Since then, HomeServe has received a number of proposals from the firm and under UK takeover rules, Brookfield has until 19 May to either announce a firm intention to make an offer or walk away.