Broker tips: BAE Systems, PensionBee, GSK

(Sharecast News) - Citi reiterated its 'buy' recommendation on BAE Systems on Monday after the shares slumped on Friday. Citi noted the shares fell around 4% "following a competitor downgrade that, we understand, highlights the risk to the US Defence budget following the creation of DOGE (Department of Government Efficiency)".

Citi said that while it understands these concerns, BAE Systems has similar expected profit growth to US peers, better free cash flow conversion, less exposure to the US DoD - therefore less risk from DOGE - and a much lower valuation, at 14.4x 2024 EV/EBIT versus the average 17.7x.

"We therefore conclude BAE Systems is a more attractive, lower risk investment and reiterate our buy recommendation," it said.

Canaccord Genuity has initiated coverage of personal pension scheme provider PensionBee with a 'buy' rating and 217.0p target price, viewing the investment as "the ultimate high-growth pension stock".

The Canadian bank labelled PensionBee "a unique UK growth story" since the company listed on the stock market relatively early on in its journey - having listed in 2021, seven years after its launch.

Canaccord said PensionBee was the fastest-growing digital platform listed on the public markets worldwide, with a two-year sales CAGR at 35% compared with other peers at just 15%. It also noted the nature of its growth was recurring at very high margins.

"PensionBee is a rarity in the online world, a business model that not only retains customers on average for 20 years but sees the value of its customers grow every year, resulting in exceptional customer economics, with customer lifetime value building to such unprecedented levels," Canaccord said.

Analysts at Berenberg lowered their target price on drugmaker GSK from £18.20 to £16.00 on Monday after hosting chief financial officer Julie Brown at its 2024 Pharma CFO series.

Berenberg noted that despite a $2.2bn Zantac settlement announcement last month, and removal of a key overhang, GSK shares had underperformed peers, with investor concerns now centred on vaccines, for which the group's Q3 results showed a repeat of the Shingrix and Arexvy sales decline in Q2.

Nonetheless, Berenberg stated that GSK's specialty medicines division was providing "a solid offset", and the group's CFO reiterated her confidence in achieving FY24 group guidance.

The German bank, which stood by its 'buy' rating on GSK, adjusted forecasts to reflect a more conservative outlook for both its Shingrix and Arexvy assets, resulting in a lower price target. However, Berenberg also noted that GSK was positioned to launch five assets in 2025, two of which have "multibillion peak sales potential", in its view.

"Although the path ahead will not be quick or easy for GSK, the extent of the valuation discount is such that even limited pipeline progress can help build momentum. GSK's dividend yield also provides support here," concluded the analysts.