Broker tips: Analysts upbeat about OneSavings Bank and Capita

The share price of Capita was given a much-needed boost on Friday morning after Shore Capital upgraded its rating on the business process outsourcing company from 'hold' to 'buy'.

The stock, having lost over a quarter of its value in the past month, is now trading at 20.9p (up 3% on the day).

Capita disappointed investors last week with its first-half results, reporting revenues, negative free cash flow, losses and debt figures below expectations. The news also comes after two data breaches, a possible fine and the announced exit of its chief executive Jon Lewis.

Shore Capital analyst Robin Speakman said "operational challenges" are still evident for the group, but thinks a lot of the bad news is already baked into the price.

"It is apparent, with restructuring due to complete this year, that Capita is set to begin to deliver better results. Much is now behind the group, challenges remain, but survival is not in doubt," Speakman said.

"Over the next year we expect to see free cash flow strengthen and profitability rise. Given survival and operating improvement, we can’t justify a 20p share price and a 'hold' stance."

Shore Capital estimates 50% upside to the current share price to around 30p, though much "hangs on the visibility of free cash flow improvement". The broker expects a swing back to positive cash generation in 2025.

The recent rebound in shares of OneSavings Bank (OSB) could have further to run, according to Berenberg, which upped its target price on the stock.

Shares of the lending and retail savings company have risen nearly 20% over the past month after plummeting in early July following a trading update which revealed a £160-180m adverse effective interest rate adjustment would be seen in OSB's first-half figures. OSB said the adjustment was a result of buy-to-let investors refinancing their loans earlier – and so spending less time on the higher reversion rate than expected – compared with previously observed behavioural trends.

On Thursday this week, the group officially reported its interim results, showing a 73% drop in statutory profit before tax to £76.7m, and a 72% decline in basic earnings per share to 12.8p.

"Changes to OSB Group’s net interest income accounting, which led to a revenue adjustment during H1, have exacerbated scepticism about the bank’s underlying strength," explained Berenberg analyst Peter Richardson.

"While these concerns are understandable, we believe that this is an isolated event. The bank’s H1 results also further demonstrate the underlying resilience of its pricing power, growth capacity and asset quality. We believe that these sources of resilience remain undervalued."

Berenberg has lifted its target price for the shares from 650p to 700p and reiterated its 'buy' recommendation.

On Friday morning, the stock was up 1.4% at 396.6p.