Broker tips: Reckitt, FirstGroup, HSBC

Analysts at Berenberg slashed their target price on household goods manufacturer Reckitt from 8,200.0p to 7,050.0p on Thursday but reiterated its 'buy' rating on the "still mispriced" stock.

Berenberg noted that in Reckitt's third-quarter results it had reported group like-for-like sales growth of 7.4%, above visible alpha-compiled consensus of 6.2%, reflecting volume growth of -4.6% and price/mix of 12%.

The German bank said the beat was predominantly driven by the group's nutrition division, which achieved 24.7% like-for-like sales growth. In other divisions, hygiene declined by 1.2% and health like-for-like sales rose by 10.7%.

"These growth rates included: 1) the continued strong positive contribution from US infant formula, which grew around 40% yoy as key competitor Abbott still faced supply issues; 2) strong growth from the over-the-counter health categories, which grew c20% from share gains and a favourable cold and flu season in key markets in the southern hemisphere; and 3) a significant headwinds from Lysol, which declined 15% yoy due to a tough comparable and post-Covid-19 normalisation," said the analysts.

Berenberg stated that its 2023 growth assumptions for Reckitt reflected a recessionary backdrop, a full reversal of market share gains in US infant formula, potential cost headwinds from a rise in labour costs, and higher financing costs.

Liberum cut its price target on FirstGroup on Thursday to 165.0p from 180.0p as it said the earnout from the sale of First Transit fell "well short" of its "admittedly bullish" assumption.

FirstGroup said on Wednesday that as part of the sale of First Transit to EQT Infrastructure, it is entitled to an estimated earnout consideration of around $85.0m.

Liberum said this is well below the carrying value of £106.0m, so will result in a loss on disposal. It is also well below its assumption of £180.0m within its sum-of-the-parts valuation.

"We had previously envisaged near-term positive catalysts from the crystallisation of value from the residual Greyhound balance sheet and the Transit earnout," Liberum said.

"Both of these have come through, with Greyhound slightly better than expected but Transit much worse than hoped for. The remaining catalysts remain longer-term, and/or less specific."

Analysts at Deutsche Bank raised their target price on banking giant HSBC from 570.0p to 650.0p on Thursday after the group's new guidance included an upgrade to consensus.

Deutsche Bank said HSBC's new guidance was an upgrade to consensus, despite the stock's "significant" share price underperformance on Wednesday.

However, the German bank said the negative foreign currency translation on revenues was more than offset by higher trading income as rates rise and from the FX translation on costs.

"Impairment guidance for 2023 at the upper end of normalised range but on lower loan growth also leads to additional upgrades," said DB, which reiterated its 'hold' rating on the stock. "On a pre-provision basis, our estimates are 4% better than consensus and 5% post-provision."