Broker tips: Vistry, BP

Analysts at Berenberg raised their target price on construction firm Vistry from 1,270.0p to 1,490.0p on Tuesday, stating the group had continued to close the valuation gap.

Berenberg said Vistry was "closing the gap" to the rest of the sector and highlighted that despite strong outperformance year-to-date, it thinks there is still further upside to both forecasts and its multiple.

The German bank pointed out that in Monday's update, Vistry management lifted pre-tax profit guidance by 4% to £325.0m and said it continues to be about 6% ahead at £344.0m.

"Like its peers, Vistry will continue to benefit from the strong market, but it also offers lower risk, higher organic growth via the partnerships business and yet only trades at circa 9x earnings, compared to the sector on circa 11x," said the analysts.

"Vistry remains one of our top picks and we reiterate our 'buy' recommendation."

Barclays has named BP its 'top pick' in the European integrated energy sector, arguing that the investment case for the oil major has been largely misunderstood.

The bank, which has an ‘overweight’ rating on the blue-chip and 475p price target, said BP was "the most misunderstood investment case of the large-cap oils".

"Our analysis shows the cashflow generation of the business as having the ability to support a 10% cash return to shareholders in the form of dividends and buybacks in a $60 per barrel environment - the highest in the sector," it said.

"The upstream business may be shrinking in volume terms, but a combination of high grading and cost savings more than offsets this, contrary to what we think is perceived by the market."

Barclays said BP's 50% step-up in marketing investment was likely to yield a corresponding step-up in cashflow in the division, adding: "The aggregate cashflow of the traditional units is enough to allow BP to ensure competitive cash returns to shareholders, continue to reduce debt, and invest in its low-carbon business."

It concluded: "Ultimately we think the switch to low carbon will be rewarded by investors, but for now it is the performance of the underlying businesses we expect to drive the share price."