Broker tips: Standard Chartered, Centrica, Direct Line

Analysts at Berenberg hiked their target price on consumer bank Standard Chartered from 750.0p to 1,000.0p on Friday, citing "increasingly evident" standalone strength.

Berenberg said Standard Chartered's shares had risen 22% year-to-date, partly reflecting speculation that the bank could be acquired.

"While a potential takeover may provide a backstop for the shares, our attraction to Standard Chartered is predicated on the underappreciated strength of its unique global business," said Berenberg. The bank's recent Q4 2022 results help to demonstrate why."

The German bank highlighted that Standard Chartered's outlook for growth, efficiency and returns exceeded its own and consensus expectations.

"Moreover, the strength of the bank's balance sheet can support sustained attractive capital returns, of circa 8.7% per year, in our view," added Berenberg, which stood by its 'buy' rating on the stock.

"Trading on 0.67x TBV versus our FY 2024E RoTE of 10.7% (below company guidance), we believe these strengths remain underappreciated."

Citi reiterated its 'buy' rating on Centrica on Friday following a "strong" set of results a day earlier, highlighting the potential for further cash return to shareholders after the announced second tranche of share buyback.

The bank, which kept its price target at 120.0p, said it sees a further £500.0m of cash return at H1, taking total return to £1.0bn.

"We expect this to be the case even assuming a step-up of investments in a portfolio of optimization projects," it said.

"With the Ofgem EBIT review and Centrica's LNG teach-in to further improve the visibility of medium-term earnings, we see scope for further re-rating of the shares despite recent performance.

"In our view, the Centrica shares are cheap with the prospect of circa 20% from its market cap being returned over 18m, currently trading on an unchallenging one-year forward 5x P/E and 2x EV/EBITDA or 9x P/E and 4x EV/EBITDA on a normalised FY25E EPS."

On Thursday, the British Gas owner said profits had more than tripled to a record £3.3bn, driven by soaring wholesale gas prices in the wake of Russia's invasion of Ukraine.

RBC Capital Markets downgraded Direct Line to 'sector perform' from 'outperform' on Friday and slashed its price target on the stock to 190.0p from 260.0p as it said the risk/reward of the shares is now more balanced.

"We think DLG can restore its solvency towards the 160% level organically in 2023, predicated on a dividend rebasing that we think is the most economically sensible option," RBC said.

"While this challenges DLG's dividend appeal, it averts the need of a capital raise, at a time when access to market funding is costly, if not undesirable to shareholders."

RBC also noted that the new chief executive appointment could catalyse a recovery, albeit it might not be immediate and timelines are not clear.