Proactive Investors -
- FTSE 100 edges higher, up 11 points
- Dunelm (LON:DNLM) falls as RBC downgrades to underperform
- JP Morgan positive on Centrica (LON:CNA) and Drax
Bank has no choice but reduce demand to tackle inflation
The Bank of England should not be blamed for tackling inflation and its choice is between a mild recession in the short term or a deeper downturn in future, an adviser to the chancellor has said.
Karen Ward, a managing director at JP Morgan Asset Management and a member of Jeremy Hunt’s seven-strong economic advisory council, said that “ultimately, the Bank of England has no choice but to bring down demand”.
Writing in The Times today, Ward said the “sad reality” of the UK’s inflation situation was that the central bank “faces the choice of being unpopular today by delivering a mild recession, or being deeply unpopular in the future by having to create a deep recession”, adding that it “should not be blamed for doing its job”.
The BoE is facing mounting pressure tame inflation, which remained at 8.7% in May, while core inflation, which strips out volatile energy and food prices, rose to its highest level in 31 years.
In response, the Bank increased interest rates by 50 basis points to 5%.
JP Morgan upbeat on Centrica and Drax
JP Morgan (NYSE:JPM) has placed Centrica and Drax on positive Catalyst Watch ahead of interim results, both on July 27th, helping push shares higher.
“We expect both companies to report strong earnings & cash flow, and provide updates on capital allocation priorities,” the broker said.
The investment bank estimates Centrica will have >40% of its current market cap in net cash by the end of 2024 even after having bought back £550mln worth of shares by the end of 2023 and paying £380mln in dividends between today and the end of 2024.
On Drax (LON:DRX), it thinks the shares continue to trade at a “significant discount to fair value,” despite “what we see as a clear message from the government that Drax power station will be supported beyond March 2027 subsidy expiry.”
It pointed out the government is due to publish its biomass strategy before Parliament’s summer recess which it expects will set out, among other things, how Bioenergy with Carbon Capture and Storage (BECCS) could be deployed in the UK, which should mean investors “turn more positive on the outlook for Drax.”
JPM raised its price target for Centrica to 150p from 140p.
Shares in Centrica rose 1.3% and Drax by 0.8%.
Informa gains as Citi highlights value
Informa is another stock to be given a nudge by analysts today.
Citi has increased its price target and raised forecasts for the firm "to reflect the positive impact of M&A, as well as strong underlying trading, as represented in the recent upgrade to FY guidance."
The broker said: "Even if this, to a degree, reflects catch up - note that our new EPS forecast for 2023E at 40.3p is higher than consensus (39.6p), but only by c. 2% - we think the near-term risk/reward tilts favourably, and we open a 30-day positive catalyst watch."
Citi said the key point is that "we think consensus forecasts of 1H revenues/profits are materially too low given the timing of the event schedule, which should help growth/drop through in June."
It reckons the results will catalyse a broader discussion about the scope for further earnings upgrades as the year progresses.
It reiterated a buy rating but increased its price target to 850p from 720p.
Shares rose 0.6% to 732.40p while the FTSE 100 is now up 3 points.