Broker tips: Lloyds Banking Group, ITM Power

(Sharecast News) - RBC Capital Markets upgraded Lloyds Banking Group on Monday to 'outperform' from 'sector perform' after the Supreme Court ruled largely in favour of banks in the car finance case. "We see Friday's Supreme Court judgement as a clearing event for the bank and expect the FCA to take a moderate approach when laying out its final redress scheme towards the end of this year," it said.

RBC said that in valuation terms, Lloyds looks relatively fairly valued, however it thinks the stock should trade at a premium to peers for a number of factors.

"We like: (i) the strength of the bank's deposit franchise, (ii) earnings sustainability driven by the structural hedge, and (iii) a relatively attractive total return yield," RBC said. "It's hard to see LLOY underperforming into the medium term given rate expectations and a softening regulatory backdrop."

RBC, which kept its price target on the stock at 95p, said it's around 8% ahead of consensus earnings per share by FY27E and 15% ahead on distributions.

Analysts at Berenberg upgraded PEM electrolysers manufacturer ITM Power from 'hold' to 'buy' on Monday, noting that the group appears to be "approaching its inflection point".

Berenberg said that over the last two years, ITM had streamlined the business and its product offering, and transformed its manufacturing capabilities. As previous legacy contracts are delivered, and the company ramps up production, Berenberg said it begins to see "a glide path to profitability".

"As these orders are delivered, our focus will turn to the potential orders from the recent series of announcements that signal over 500MW of orders and £350m-450m of potential revenue, 3x bigger than the current order book," said Berenberg.

The German bank, which hiked its target price on the stock from 59p to 100p, said it believes that ITM can scale up and deliver a roughly 20% gross margin on these orders, driving a "significant increase in the profitability of the business". It also noted that this potential backlog does not include the expected ramp-up in orders and delivery of NEPTUNE V contracts in the coming years.

"We amend our longer-term forecasts in line with our view that the company will build on its inflection point in FY28 and increase profitability thereafter. We now focus on a DCF and multiple-based approach to valuation. Given the significant and growing market backdrop for green hydrogen in ITM's target markets and improved operational delivery, and as we approach the inflection point, we upgrade to 'buy'," said Berenberg.