Broker tips: Standard Chartered, Vodafone, Greggs

Lower credit costs will boost Standard Chartered’s earnings more than investors expect, Jefferies said as it nudged up its price target for the bank's shares from 589.0p to 594.0p and restated its 'buy' rating on the stock.

The Asia-focused bank’s return on tangible equity will jump to 7% in 2022 from an estimated 2% as revenue returns to growth of about 4% and credit costs drop, Jefferies analyst Joseph Dickerson said.

Revenue will benefit from volatility in areas such as foreign exchange and pent-up loan demand as economies revive, Dickerson said. Credit cost provisions for 2020 look conservative against a cyclical recovery in the banks’ markets and sectors such as metals and mining performing better, he said.

Standard Chartered should start to receive positive earnings revisions with Jefferies estimates for the next two years 22% ahead of consensus, Dickerson said.

"We believe credit expenses can be a source of operational surprise at STAN and our below consensus charge for '21E explains nearly 50% of the gap to consensus," Dickerson wrote in a note to clients. "Ongoing moves in both markets activity and a release of pent-up loan demand in key geographies are characteristics that should benefit STAN's revenue base in Q4 and into 2021."

Analysts at Berenberg upgraded their recommendation for shares of Vodafone to 'buy' and raised their target price on the stock from 148.0p to 155.0p, pointing to three drivers which they argued would allow the company to deleverage and close its valuation discount versus peers.

In the past, the firm has suffered from all of the ills that afflict the sector, a lack of growth, excessive debt and complexity.

But the broker expected that from 2021/22, Vodafone would post "consistent" revenue growth, allowing it to pare its debt to the bottom end of its target range as a proportion of earnings before interest, taxes, debt and depreciation of 2.5 to 3.0 times.

The analysts also expected Vodafone to continue making progress on simplifying its portfolio.

Other drivers for the firm's performance were expected to be its continued focus on mobile, the benefits that accrue from being a 'challenger' and not an 'incumbent' and its "large" exposure to the German market "which has a segmented, two-tier market structure, and has shown over time that it can grow broadly in line with GDP."

Analysts at Shore Capital have issued a 'sell' recommendation and target price of 1,780.0p on Greggs shares, arguing that more people working from home during the Covid-19 pandemic was a "game changer" for the High Street baker.

Greggs on Wednesday said it expected to post a full-year pre-tax loss of £15m, reflecting the impact of the pandemic and associated lockdowns, and added that it did not see a return to pre-Covid profitability until 2022 at the earliest.

ShoreCap said the latest national lockdown, imposed by the government on Monday, meant the first quarter of fiscal 2021 would see a "probable heavy hit" to earnings.

"It is a game changer, which most probably notably reduces the long-term growth potential of the group, noting that within its growth plans outlined in March 2020 around 80% of new stores where to be located in Work/Travel locations!"

"With a loss-making FY2020 in tow, a notable hit to full-year 2021 and the drag of working from home and all its effect thereafter, the grounds for Greggs' equity to be structurally de-rated are, we are sad to say, strong; to argue that Greggs stock should be re-rated is abject nonsense in our view."