Broker tips: TP Icap, Safestore

(Sharecast News) - Shore Capital upgraded its stance on TP Icap on Tuesday to 'buy' from 'hold' on Tuesday following the company's results last week. The analysts said TP Icap's full-year numbers were broadly in line with estimates after significant downgrades through last year.

"The results portray a company which still faces large structural challenges," the broker said. "However, the outlook was surprisingly cautious, in our view, given the backdrop of yield curve steepening, interest rate rises, market volatility and recent weakening in GBP versus USD."

ShoreCap said the stock's valuation was not demanding coming into these results, however it has since lost further ground.

"The share price appears to be saying that the dividend is not sustainable. We think it is and leave dividend per share forecasts unchanged, implying a yield of 8.8% in FY22F rising to 10.1% in FY23F."

Shore added that while TP Icap was not one of its favourite stocks among UK financials, the dividend yield was now sufficient for it to recommend the shares.

Analysts at Berenberg hiked their target price on self-storage facilities operator Safestore from 970.0p to 1,280.0p on Tuesday, stating the firm had experienced "a period of supernormal growth" since coming out of initial Covid-19 lockdowns.

Berenberg, which said this growth was yet to "meaningfully slow down, noted that through most of the period, it had taken a 'hold' stance on the stock as it believes the growth likely reflects brought-forward demand that could lead to subsequently falling occupancy as demand normalises, as well as the fact that its all-time high valuation reflected "an unattractive risk/reward ratio", given its near all-time high forward earnings multiple.

However, with shares up "materially" since its downgrade in June 2020, Berenberg said this view had "clearly been wrong".

"Now, as we enter a period of likely more muted occupancy growth, Safestore is proving its extraordinary pricing power; from this, we expect it to witness a successive year of double-digit like-for-like growth in full-year 2022, before returning to its prior circa 5-7% trajectory," said the analysts.

The German bank added that while it reckons near-term upside to its forecasts remains, it opted to potentially repeat its "mistake of 2021" and maintain its 'hold' rating on Safestore, as it believes the shares were fully valued at a roughly 26x 2023 price-to-earnings ratio - 20% above the average forward valuation for Safestore over the past five years.