14th Jul 2023 13:59
(Alliance News) - UK equities are "under-owned" and cheap, Barclays said on Friday, as its analysts set out some of the investment bank's conviction stock ideas for the coming quarter.
Barclays set out seven 'overweight stock ideas' and one 'underweight', the latter being Metro Bank PLC. Barclays believes the lender faces the risk of "deposit mix shift and outflows" putting consensus estimates for net interest income at risk for its first-half results.
"Pass-through of rate hikes on both retail and commercial savings has been low so far, but we expect it to rise from here," Barclays cautioned.
Among its overweights, meanwhile, are Drax Group PLC, Tullow Oil PLC, Weir Group PLC, Haleon PLC, Unite Group PLC, easyJet PLC and BAE Systems PLC.
For student accommodation provider Unite, Barclays believes its half-year results "may provide a positive catalyst". It expects to see an update on "rental growth expectations for the coming and following academic years".
The investment bank expects power generator Drax to return "60% of its market cap to investors" over the three years to come, including GBP400 million in dividend and GBP150 million in buybacks.
Tullow Oil's half-year results in September will be a catalyst, meanwhile.
"We view the [first half] results statement as a catalyst where at the very least management can reiterate its operational goals and provide greater reassurance/visibility on its strategy to extend the maturity of its 2025 debt. This could then enable Tullow's stock to begin re-rating, narrowing the valuation discount relative to its peers," the investment bank said.
Barclays said mining technology firm Weir Group is one of its preferred names in the space. However, it noted its stock has underperformed peers.
"It is due a catch-up in our view," Barclays added.
Elsewhere, Haleon may enjoy decent growth in quarters to come. Barclays hailed the firm's ability to deliver "mid-single digit growth", even during tough comparatives. Barclays predicts Haleon's volume growth will stack up well against peers.
easyJet, Barclays said, is among a number of airline stocks benefitting from a "very strong pricing environment" and post-pandemic demand for travel.
"With a September year-end, easyJet will have good visibility on trading for [financial] 2023 and should thus be freer to raise [full-year] outlook commentary than airlines with later year ends," the investment bank added.
For its final 'overweight' idea, Barclays believes BAE Systems has the cash in its coffers to announce a buyback increase.
All-in-all, Barclays believes UK equities have been overlooked.
"UK stocks are under-owned and look very cheap despite having resilient [earnings per share] momentum. The UK domestic economic outlook is rather unappealing to us though, with BoE struggling to contain elevated inflation, some of which is due to structural changes in labour market post Brexit. But a lot seems priced in, as UK equities have seen record outflows and FTSE 250 has lagged the rebound in GBP," the investment bank added.
By Eric Cunha, Alliance News news editor
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