Rolls-Royce, Glencore and Tesco were highlighted among several “whatever the weather” winners that are seen as enjoying multi-year sustainable advantages over rivals and upside to their shares, according to investment bank Jefferies.
Drawing insights across all sector analysts, a list was drawn up of over European stocks that “can generate superior risk-adjusted returns”, with an average 19% upside in 12-month targets and 48% upside in long-view upside cases.
The full list of London names also includes Anglo American, Auto Trader, Ashtead Group, Beazley, CRH, Flutter Entertainment, Grainger, Haleon, LondonMetric Property, LSEG, National Grid, Sage Group, Smurfit Kappa, Volution Group and Wise PLC.
European names with the biggest perceived upside to Jeff’s target price are semiconductor equipment maker ASML at 37%; lift maker Kone at 31%; mobile tower company Cellnex at 36%; drugmaker Sanofi at 32%; industrial giant Siemens at 28%; lab tech maker DIB at 26%; and brewer Heineken at 25%.
For Rolls-Royce Holdings PLC (LSE:RR.), even though it was the FTSE 100’s best performing share last year, almost tripling in value as its post-pandemic revival took off on the back of a recovery in airline flying hours, Jefferies said the story does not end there.
A multi-year recovery is predicted by analyst Chloé Lemarié driven by three points: the end of the services contract repricing started last year, the benefit of market-share gains with 35% of the installed base of wide-body aircraft and 50% of the current backlog, and only 16% of the fleet over 15 years old, and the long-term potential to re-enter the narrow-body airline market.
“Rolls-Royce is only in the early stages of its recovery, with almost a doubling of EBIT and free cash flow expected by 2027,” the analyst said, but with the shares trading at a discount to peers.
The share offer a 14% potential upside to Jefferies’ target price though.
Beazley PLC (LSE:BEZ), at 44%, tops that by some way. The Lloyds insurer has the highest exposure amongst global listed insurers to cyber risks , at 19% of 2023 net premiums, which analyst James Pearse views as “the best structural growth opportunity in global insurance”.
Its 2.4% market share in US cyber insurance is topped by an even larger share in Europe, where the market backdrop is “very attractive” and roughly seven years behind the US in terms of the cyber insurance growth cycle.
“The current D&O [directors and officers] market, a similarly specialised product which was initially heavily weighted towards the US, but is now roughly split 50/50 between the US and Europe, is a good comparison to demonstrate the growth opportunity.”
Offering a 41% upside to the target price, Flutter Entertainment PLC (LSE:FLTR) is the largest online gambling company globally, including the #1 market share position in the nascent US market.
“Benefits of scale accrue to online gambling operators, permitting greater relative investment in technology, product and marketing,” said analyst James Wheatcroft, noting that permissive online gambling regulation continues to open new markets, including Latin America.
Flutter is “well-placed to benefit given its leadership position” and a premium to the current valuation of rival DraftKings “could be argued for Flutter’s US business, FanDuel”.
Next in terms of potential upside are: National Grid PLC (LSE:NG.) at 28% (“We see the UK’s plan to overhaul its transmission grid to facilitate more offshore wind connections as a game-changer for NG’s growth outlook”); Tesco PLC (LSE:TSCO) at 22% (“as the largest player in UK food retail, Tesco is best placed to take advantage of the most supportive industry competitive environment in decades”); Auto Trader Group PLC (LSE:AUTO) at 21%, Haleon PLC (LSE:HLN, NYSE:HLN) at 20% and London Stock Exchange Group PLC (LSE:LSEG) at 19%.