Broker tips: Segro, Admiral, Rolls-Royce

(Sharecast News) - Citi has raised its target price for Segro from 1,069p to 1,149p and reiterated a 'buy' rating, hailing the industrial real estate group's structural growth ahead of an upcoming expected fall in interest rates.

"We reiterate our 'buy' rating on Segro as real estate markets navigate the remainder of the cyclical trough and look forward to next-cycle upside, that for Segro we expect has begun," the US bank said in a research note.

"Segro's investment case is one of structural rental growth from the gradual march of online retail, increasing supply chain robustness, urban demand growth, and a demand inflection for data centres."

Citi reckons that Segro's portfolio will generate like-for-like rental growth per annum of 7% over the long term, "if not more", and that the portfolio value has 35% upside. Completions in developments and future acquisitions could also significantly upgrade earnings over the next few years.

"The stock could return to historic bull market multiples as cyclical confidence builds that could create further upside," Citi said.

Berenberg upgraded Admiral on Tuesday to 'buy' from 'hold' and lifted the price target to 3,127p from 2,973p, citing an attractive valuation.

"Investor Warren Buffett once said: 'It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.' Fortunately, today investors can buy Admiral, a wonderful company, also at a wonderful price."

It noted that since it downgraded the shares in December, they have gone sideways. The stock has de-rated and underperformed the sector by around 10%. However, Berenberg reckons they now look cheap again.

The bank also pointed out that Admiral is trading towards the bottom end of its price-to-earnings range and said it thinks there is scope for further earnings per share upgrades, in particular because it feels the price increases are still not appropriately reflected in consensus estimates for 2024. Berenberg is now 20% ahead of consensus EPS for FY24E.

Deutsche Bank hiked its price target on Rolls-Royce to 555p from 465p on Tuesday as it revisited the valuation ahead of first-half results.

The bank said the first-quarter update provided evidence that execution at Rolls-Royce is improving.

"While our 2024-2027 estimates are broadly unchanged, our degree of confidence in the company's ability to deliver on its transformation programme has increased," it said.

"Ahead of the H1 release on 1 August, we adopt a scenario described in a previous note: we move our valuation to 2027e, based on increased confidence in 2027 target attainment."

DB rates the shares at 'buy'.

At 1215 BST, the shares were down 3.8% at 453.40p, taking a hit from the profit warning from Airbus late on Thursday.