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Top 5 UK stocks to watch in September 2021

Analysts say these five FTSE 100 stocks are among the ones to watch this month. Here are their insights.

These five London-listed equities are among analysts' most recommended to trade for the month of September 2021, based on their latest ratings, price targets and research.

1. Rolls-Royce Holdings (LON: RR)

2. Lloyds Banking Group (LON: LLOY)

3. International Consolidated Airlines Group (LON: IAG)

4. BHP Group (LON: BHP)

5. Sainsbury's (LON: SBRY)

Rolls-Royce (LON: RR)

Average 12-month target price: 119p

Latest traded price: 113.6p

Estimated upside potential: 4.8%

Despite Rolls-Royce Holdings being the best-performing stock on the FTSE 100 in the last 30 days, shares continue to trade at least 50% below their pre-pandemic moving average price of around 250 pence per share.

Analysts also view the aviation engineer’s stocks as severely undervalued when compared to its peers, as a DCF valuation metric shows that Rolls-Royce shares have been trading around 70% lower than competitors.

Still, the outlook on the stock is a positive one, with analysts expecting the aviation sector to bounce back strongly in the coming years.

Case in point: JPMorgan analysts raised their price target on RR two weeks ago to 130p from 105p, on the back of higher earnings forecasts over the next three years.

The firm also predicted that a reported sale of the group’s Spanish unit ITP Aero to consortium-led investment house Bain Capital for a rumoured €1.6bn (£1.5bn) could boost free cash flow to around £750 million by 2023.

Finally, the analysts noted that Rolls-Royce’s first half underlying profits for 2021 beat consensus estimates by £536m, which indicated that its cost-cutting programme is starting to pay off.

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Lloyds (LON: LLOY)

Average 12-month target price: 52.49p

Latest traded price: 44.09p

Estimated upside potential: 19%

Barclays, maintaining an ‘overweight’ call and 62p price target, sees ‘significant value’ in Lloyds shares.

‘We see Lloyds as best placed to deliver double-digit RoTE (return on tangible equity), consensus-beating earnings, whilst also benefitting from likely write-backs,’ Barclays analysts noted.

Meanwhile, Bloomberg Intelligence (BI) wrote that the uptick in UK mortgage demand has been ‘a powerful tailwind’ for UK banks.

However, despite the mortgage market’s attractiveness, Lloyds has said that more competitive pricing and several other sectors would ensure it remained disciplined in its underwriting.

‘While the strength in pipeline for 3Q mortgage volumes was also highlighted, Lloyds’ view that a slowdown is due in 4Q… tallies with our thinking and should slow the housing market,’ BI added.

As of Monday (30 Aug), research teams were largely optimistic on the LLOY stock, with 16 recommending ‘buy’, seven suggesting ‘hold’, and three with ‘sell’ calls.

Their average 12-month target price stood at 52.49p, Bloomberg data showed. That implies a potential upside of 19% based on Monday’s close.

International Consolidated Airlines Group (LON: IAG)

Average 12-month target price: 220p

Latest traded price: 158.74p

Estimated upside potential: 38.6%

Credit Suisse analyst Neil Glynn maintained a bullish stance on the IAG stock with a ‘buy’ call on Thursday (27 August).

He also kept his target price at 256p a share, which equates to a potential 61.3% upside from the most recent price of 158.74p.

Earlier this month, Liberium Capital boosted its rating to a ‘buy’ on IAG alongside a target price of 255p, while UBS Group lowered its target price to 255p from 280p but continued to recommend ‘buy’.

Things are starting to look up for the Anglo-Spanish airline group, with British Airways having resumed operation of its seasonal service linking Slovenia’s capital Ljubljana to London’s Heathrow airport, as well as its Singapore flight connections with Jetstar Asia at the city-state’s Changi Airport.

IAG’s Aer Lingus also resumed flying on the Dublin-Washington route earlier this month. The airline is now flying to four US cities, versus the 15 cities in North America it was servicing before the pandemic.

Ireland’s RTÉ news channel reported that restrictions on travel between the US and Europe could be eased in early September, and Aer Lingus ‘is in a good position, with unit costs much lower than competitors on transatlantic routes’.

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BHP Group (LON: BHP)

Average 12-month target price: 2,394p

Latest traded price: 2,288p

Estimated upside potential: 4.6%

RBC Capital analyst Tyler Broda reiterated an ‘outperform’ rating on BHP Group, a day after the iron ore miner announced plans to unify its dual-listing company (DLC) structure as part of its FY2021 results.

The company plans to shift its primary listing to the Australian Stock Exchange, but will retain a standard listing on the LSE, a listing on the JSE, and its ADR on the NYSE.

Barclays, which rated the stock ‘overweight’ with a price target of 2,500p, acknowledged that while ‘there are risks’ associated with the move, ‘an off-market buyback in Australia in February would address this: we forecast a US$9bn buyback in FY22 to meet an assumed US$7.5bn net debt target’.

As part of the DLC restructuring, BHP Group’s UK PLC shares will be exchanged for its Australia Ltd shares on a one-for-one basis.

‘Given PLC shares pre-announcement traded at a 16% discount to Ltd, this has had a materially positive share price benefit to the PLC. We expect the spread to move to about a 6% discount with further closure likely as we move towards votes by PLC and Ltd holders in Q1-22,’ the analysts wrote.

BHP Group will also offload its petroleum business to Woodside Petroleum, which Deutsche Bank analysts say is a ‘good strategic step’ and ‘increases the likelihood of copper and nickel acquisitions’.

However, they ‘see limited valuation uplift’ from the proposed structure as ‘it leaves BHP short on growth options’.

Sainsbury’s (LON: SBRY)

Average 12-month target price: 280.33p

Latest traded price: 304.3p

Sainsbury's shares skyrocketed over 15% to a seven-year high last week, after it was reported that several private equity funds were interested in acquiring the UK’s second largest supermarket chain.

US investment group Apollo Global Management was said to be one of the frontrunners in a potential bid war for stakes, having expressed interest at a rumoured price tag of 7 billion pounds (US$9.53 billion).

Shore Capital and UBS Group analysts reiterated a ‘buy’ call on the stock following the news.

Sainsbury’s market capitalisation currently stands at over £7.15 billion, after already having risen over 50% year-to-date.

One analyst, however, believes the FTSE 100 stock is worth more.

'Sainsbury’s is undeniably a good target for private equity with a considerable store estate, with the company having more than US$10 billion in property assets – more than its current market cap by decent margin,’ said Neil Wilson, an analyst at Markets.com.

'The Argos tie-up is another long-term growth lever and provides further scale, while profits are on the up again in the wake of the pandemic, and net debt has come down.

'It’s hard to beat those reliable cash flows – even without a big sale & leaseback plan the supermarkets are generating the kind of yield that is hard to get elsewhere,’ he added.

How to trade UK stocks with IG

Are you feeling bullish about Rolls-Royce, Lloyd’s, IAG, BHP Group and other FTSE 100 constituents?

You can buy (long) and sell (short) a range of assets - from shares to forex – via CFDs in a few easy steps:

  1. Create a free live or demo IG account or log in to your existing account
  2. Enter <company name> in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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