RBC upgrades Provident Financial to 'outperform'
RBC Capital Markets upgraded Provident Financial to 'outperform' from 'sector perform' and upped the price target to 3,200p from 3,000p, saying risks were to the upside ahead of the upcoming capital markets day.
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The bank said Provident maintains a considerable surplus capital position and that its revised price target shows a 9% implied return with a 5% dividend yield, which it reckons justifies an outperform rating.
"While we admit this is not the most exciting upgrade or compelling potential upside, in a fully valued market and given the ongoing low interest rate environment, we believe at current levels Provident Financial is an attractive investment that could provide investors with share price upside and an attractive dividend yield."
RBC expects management to guide upward for the forward years at the CMD and therefore believes that its higher forecasts may still be too conservative and consensus upgrades are likely.
The bank's upside scenario assumes that Provident’s earnings throughout its forecast horizon are 10% ahead of its forecasts, resulting in a commensurate increase in ordinary dividends.
Its downside scenario assumes Provident's earnings are 10% below its forecasts, resulting in a commensurate decline in ordinary dividends.
At 1407 GMT the shares were up 1% to 2,956p.