Broker tips: Shawbrook, MONY Group, Pearson

(Sharecast News) - Barclays started coverage of Shawbrook on Wednesday with an 'overweight' rating and 520p price target as it said it was unique among UK financials and that its shares were attractively valued. The bank pointed to the fact that Shawbrook was a high-growth, high-profit specialist UK digital bank with a strong track record of delivering outsized returns of 18-19%, regardless of interest rate and cyclical factors.

"Shawbrook works with complex clients who are typically underserved by traditional lenders, and deploys a specialist underwriting capability, underpinned by smart technology, to originate business at pace, with high risk-adjusted margins at a low marginal cost," Barclays said.

Barclays forecast a 17% to 19% return on tangible equity each year for 2025E-28E, consistent with management guidance of high teens, and also said there was clear valuation upside.

"At 6.7x 2027E price-to-earnings or 1.25x PTNAV for an 18-19% RoTE, we see attractive value in the shares," it said. "Our price target of 520p values the bank at 8x 2027E PE, an undemanding level which reflects still-subdued valuations for broader UK financials. Indeed, if UK risk premium can continue to normalise, we see our upside case of 650p (equivalent to 10x 2027E PE) as achievable."

Barclays expects the shares to re-rate over time as the company confirms a strong outlook for earnings with results updates, with additional support from rate cuts and improving liquidity as free float likely increases over time.

Analysts at Berenberg lowered their price target on Moneysupermarket parent MONY Group from 300p to 275p on Wednesday following the group's 3 December trading update.

Berenberg stated the key catalyst for MONY's shares remains an improvement in top-line growth, which was likely to be driven by an improvement in motor premiums. "While there are early green shoots, they remain circa 10% below the prior peak," said Berenberg.

The German bank, which has a 'buy' rating on the stock, said the re-platforming that MONY has undergone over the past four years should mean that a large step-up in investment will not be required and that the company can evolve quickly as AI affects the industry.

"MONY is confident that there are further operational efficiencies to be gained from the re-platforming and as AI is applied across the business," said the analysts.

"We update our estimates to account for the sale of the stake in Ice Travel Group (ITG) and make divisional estimates based on the trading update, which sees our adjusted EBITDA forecasts fall by 2%. MONY trades on a P/E of 10.2x and an FCFe yield of 10%."

Educational publisher Pearson rallied on Wednesday after JPMorgan hiked its price target on the 'overweight' rated stock to 1,440p from 1,330p.

JPMorgan said Pearson could benefit from labour market disruption as job losses were likely to push more people into education.

It also said that job losses linked to AI would lead to a countercyclical increased demand for US higher education and training - boosting demand for Pearson's products.

JPM said Pearson's integrated digital and assessment products and trusted brands will also protect it from AI encroachment, while AI could inspire more lifelong learning.