Broker tips: Lloyds Banking Group, Unilever

The Canadian bank stated it was updating its estimates after the bank's second-quarter results this week and maintaining the price target.

RBC said that trading at around 1x one-year-forward TBV, Lloyds now looks expensive relative to peers, and it believes that the re-rating story will be much tougher from here.

"We continue to feel that LLOY is a well-managed bank with favourable strategic positioning, but we have run out of runway in valuation terms," it said. "We did not downgrade to underperform due to: (i) the strength of the bank's deposit franchise, (ii) the certainty of momentum provided by the structural hedge, and (iii) a relatively attractive total return yield."

RBC sees asymmetric risk to the downside in the event of a bad outcome from the Financial Conduct Authority’s review of motor finance.

"Pre-results consensus included circa £1.1bn in remediation charges for the issue versus our conservative base case of circa £2.5bn," it noted. "We expect that a soft outcome could represent a positive catalyst, but the reward is not worth the risk, in our view. There is also a high probability that September's announcement yields no clear outcome, with the can being kicked down the road, extending the period of uncertainty regarding this issue."

Analysts at Berenberg hiked their target price on consumer goods giant Unilever from £49.60 to £55.70 on Friday, stating that the group's recent H1 results highlighted a return to "high-quality earnings growth".

Berenberg noted that underlying sales growth was 3.9% year-on-year, which was a touch below visible alpha consensus of 4.3% – driven by pricing of 1% - while volume/mix growth of 2.9% was slightly better than expected. Underlying operating margins in H1 were 19.6%, ahead of consensus estimates of 17.6%, and underlying H1 earnings per share came in 12% above estimates.

"We are pleased with the faster-than-expected inflection to earnings growth in 2024. Importantly, the higher earnings appear to be supported by what we would recognise as 'high-quality' drivers, such as volume growth and gross margins, which have been largely missing for Unilever since 2019," said Berenberg.

However, the German bank also noted that while the business is well on track to deliver strong earnings growth in 2024, it was not yet "firing on all cylinders", leaving room for further strong earnings growth in 2025, in its view.

"Our 2024 organic sales growth forecast is unchanged at 4.2%; however, our operating margin forecast is 18.3% (previously 17%), driving a 4% EPS upgrade. Our forecasts are based on a slightly higher tax-rate assumption of 26% (previously 25%)," concluded Berenberg, which stood by its 'buy' rating on the stock.