Broker tips: EnQuest, DS Smith, NatWest

(Sharecast News) - Analysts at Canaccord Genuity slightly lowered their target price on exploration and production company EnQuest from 40.0p to 35.0p on Monday as it pondered what exactly the stock's investment thesis was following its admittedly "solid" trading update. Canaccord Genuity stated EnQuest's recent trading update showed, unsurprisingly, operational performance in line with the company's November update, and while year-end net debt was "a little higher" than its had anticipated and full-year production guidance "a little lower", it said these seemed to be "quibbles rather than significant detractors".

The Canadian bank highlighted that EnQuest strengthened its balance sheet "significantly" in 2022 through a combination of "solid production delivery and high oil prices", reducing net debt at year-end to $720.0m.

However, Canaccord highlighted that though the financials had been "effectively stabilised" and said the stock "still looks good value", the investment rationale was partly based on the possibility of new high-impact market catalysts.

"The macro environment is tougher - lower oil prices, higher costs, and the natural risks concerning UK oil and gas taxation - and the asset base now looks to be in long-term decline. To provide significant market impetus, we think the company will need to provide meaningful shareholder returns (for now we think that is unlikely until 2024), introduce inorganic growth (which seems more likely in 2023), or a company sale (the tax loss pool plus Kraken could still be an appealing combination to an acquiror)," said Canaccord, which reiterated its 'speculative buy' rating on the stock.

DS Smith slumped on Monday after Bank of America Merrill Lynch downgraded its stance on shares of the packaging company to 'neutral' from 'buy'.

The US bank expects the group to see much lower box volumes in the third quarter and for prices to fall in 2024. It also pointed to higher energy and labour costs.

BofA reckons volumes were now past their peak and expects them to drop as a result of de-stocking.

It added that DS Smith's peers had reported "relatively strong de-stocking effects in container-board/boxes" this earnings season and said the shares appeared to be "fairly priced" after outperforming peers by 10%-15% in the last three months.

Analysts at Berenberg lowered their target price on banking group NatWest from 380.0p to 360.0p on Monday, stating "conservative guidance" had provided a floor.

Berenberg said NatWest's updated revenue and cost guidance was "disappointing", in its view, and had led to a 7% fall in the bank's share price on the day of its recent results, despite stronger Q4 earnings and capital returns.

However, while the German bank's earnings per share expectations fell by up to 4% to reflect the bank's updated guidance, it still believes that NatWest can generate a 15.3% full-year 2023 return on tangible equity - rising to more than 16% from FY 2024.

"Moreover, we regard this as a floor," said Berenberg, which reiterated its 'buy' rating on the stock. "Specifically, applying more realistic assumptions to NatWest's guidance, alongside a 25 basis point loan loss rate, would increase our forecast RoTE by circa 1.1 percentage point."