Broker tips: BP, Trainline, Taylor Wimpey

(Sharecast News) - RBC Capital Markets upgraded BP to 'outperform' from 'sector perform' as it said the current commodity price environment provides another chance to deleverage.

The bank, which left its price target at 700p, noted that it has been critical of BP's capital allocation over recent years, across both its transition efforts and decisions made in its core business.

"Looking forward, another unexpected windfall gives BP another chance to put the business on firmer footing," it said. "Given material damage on energy infrastructure in the Middle East as well as material inventory drawdowns across oil products, we see a period of prolonged higher commodity prices supporting BP's investment case. We see BP's leverage being comparable with peers by 2027E, paving the way for a complete removal of the hybrids in the future."

RBC said new management will need to maintain discipline "and try not to get FOMO" as peers continue, and even raise share buybacks.

At the same time, it pointed out that BP has a number of projects in execution, as well as some potentially interesting exploration opportunities which should provide more depth in the growth hopper.

RBC said that farming down its Gulf of Mexico assets could help free up capital and enhance near-term free cash flow. It also argued that incoming chief executive Meg O'Neill will likely now put her stamp on the executive team.

"In our view, bringing in more external talent would enhance the perception of 'real' cultural change at BP. We think investors would also need confidence that changes at the top are set to permeate through the organisation."

Analysts at Canaccord Genuity cut their target price on online ticketing platform operator Trainline from 330p to 311p on Monday, stating the firm's "mixed outlook" lacked momentum.

Canaccord Genuity stated that while Trainline reported "broadly positive" full year results on 6 May, its mixed outlook left the shares lacking what it believes they need - "momentum in nearterm estimates".

The Canadian bank said continued headwinds in the UK have perpetuated a cycle of "modest downgrades" to revenue growth expectations, leading it to reduce its forecasts by 2.5% to 7% across FY27-FY28 as a result.

However, Canaccord also said it continues to consider most of these headwinds to be "temporary in nature" and should "largely roll off" within the next 12 months.

In addition, Canaccord noted that Trainline was seeing "very strong demand" for its B2B distribution offering, which grew 36% year-on-year, and highlighted that as the "more temporary headwinds" begin to fade, there was "a solid foundation" for mediumterm growth.

"Trainline trades on a 7.8% FCF yield (incl. SBC) and 8.9x P/E on FY27E estimates. We maintain our 'buy' rating but lower our DCF-based target price to 311p due to lower estimates," said Canaccord.

Deutsche Bank cut its price target on Taylor Wimpey on Monday to 96p from 122p as it said the housebuilder's recent update painted a more negative picture of the UK housing market than peers and the stock is too expensive relative to peers.

Taylor Wimpey pointed to a deterioration in pricing, a slight moderation in lead indicators and an expectation of increasing build cost inflation, the bank noted.

"The output of this is that we downgrade FY26/27/28 profit before tax by circa 20-30%," it said. "We now forecast return on equity of 5-6% FY26-28, the second lowest amongst the housebuilders on our forecasts, and around 20% below its closest large cap peers."

Deutsche Bank pointed out that despite this, Taylor Wimpey trades at a roughly 15% price-to-net tangible asset premium to these peers, noting that Its price target cut reflects the lower return on equity.

"We see this premium as wholly unjustified, and we think it is a function of investors buying into TW's income attractions (circa 7% dividend yield)," DB said. "However, with shareholder distributions forecast to represent 150% of post-tax profits, alongside cash outflows from fire-safety, we hold concerns over its sustainability."