Broker tips: NatWest, B&M Value, Anglo Pacific

(Sharecast News) - Jeffries has upgraded its rating on NatWest Group from 'hold' to 'buy' on Wednesday on the back of rising interest rates. Jefferies said the outlook for the level and transmission of rising interest rates had "materially improved" relative to its January downgrade of the stock, stating it now projects rates being 75 basis points higher than where it had previously modelled and said structural hedge balances had risen, with swap rates providing a material tailwind.

The broker, which upped its price target on the stock to 359.0p from 246.0, also highlighted that banks had increased new mortgages rates by around 50 basis points since March.

Jefferies said: "We once again see asymmetric rewards for NatWest and believe consensus estimates fail to appreciate interest rate gearing in outer years [...] let alone the share price, which fails to appropriately reflect the 13% return on tangible equity we model for 2024.

"Further, we see £5.4bn of cumulative dividends and buybacks announced through 2024 -23% of current market cap."

Jefferies also expects see full-year earnings per share for NatWest of 24.5p, 33.7p and 40.8p for 2022, 2023 and 2024, up on earlier forecasts for 15.4p, 22.9p and 29.1p respectively.

Shore Capital reintroduced B&M European Value Retail's 'hold' rating on Wednesday ahead of an expected "muted" quarterly trading update.

The broker, which had previously placed the discount retailer 'under review', expects first-quarter revenue to decline 7%, with B&M UK down 9% or by 13% on a like-for-like basis.

ShoreCap also added that 93% of all products sold at B&M were less than £20, making it less exposed to share reductions in spending on higher ticket items.

"However, B&M has struggled to pass through the cost inflation to consumers - only 4% so far - due to the elasticity between volume and price on a general merchandise individual category level," said Shore Capital.

"B&M is firmly in the retail value-for-money camp. However, we see challenges ahead due to the cost of living squeeze, particularly among B&M's lower-income consumers, and reintroduce our 'hold' rating."

Analysts at Berenberg raised their target price on mining giant Anglo Pacific from 360.0p to 300.0p on Wednesday after Australia's Queensland government announced an adjustment to its royalty rates for coal.

Berenberg stated that while the rates for lower coal prices were unchanged, Queensland has added three new tiers to the royalty regime and has lifted the rate for higher coal prices from the top rate of 15% to 20% for coal prices between AUD $175 and AUD $225 per tonne, 30% for coal prices above $225 per tonne and up to AUD $300 per tonne, and 40% for coal prices above AUD $300 per tonne.

The German bank noted that the structure of Anglo Pacific's ownership of the Kestrel metallurgical coal mine in Australia, of which it owns 50% of certain substratum lands, meant that it was entitled to coal royalty receipts from the mine.

Berenberg said this was "a major tailwind" for Anglo Pacific, given "particularly strong prices" for both metallurgical and thermal coal, currently trading at $386 per tonne and $348 per tonne, respectively.

The analysts, who also reiterated their 'buy' rating on the stock, highlighted that Kestrel produces predominantly metallurgical coal but also has an element of thermal coal in its mix.

"The attractiveness of the royalty business model is highlighted here, with meaningful earnings accretion in a period when cost pressure is a major negative risk for traditional miners - something that we think will be highlighted further in the upcoming results season. We reiterate our 'buy' rating on Anglo Pacific, which remains, in our view, a low-risk way to play high commodity prices without the risk of cost inflation, FX impacts, and capex overruns. The stock is trading on 4.1x EBITDA and 0.84x NAV."