Interactive Investor

Rolls and Shell named among Europe’s top picks

Big upsides are seen for several FTSE 100 names after their inclusion among Europe’s best stock ideas. Our City writer takes a look at the list.

15th February 2024 13:25

Graeme Evans from interactive investor

Rolls-Royce, Shell and AstraZeneca are among the top picks after analysts at Bank of America today named their 2024 best stock ideas from across Europe.

The 20-strong list also includes Rio Tinto Registered Shares (LSE:RIO), Beazley (LSE:BEZ), Flutter Entertainment (LSE:FLTR), Informa (LSE:INF) and Babcock International Group (LSE:BAB), alongside Europe’s Heineken NV (EURONEXT:HEIA), Lvmh Moet Hennessy Louis Vuitton SE (EURONEXT:MC) and TotalEnergies SE (EURONEXT:TTE).

Despite Europe’s challenging macroeconomic backdrop, the bank’s research team sees  significant upside for several stocks.

They include AstraZeneca (LSE:AZN), whose shares have had a rocky ride since last week’s annual results but are backed with a 49% upside to a target price of 14,500p.

The bank highlights the potential of the group’s “best-in-class” drugs pipeline, with multiple product launches and late-stage trial catalysts set to drive meaningful sales growth.

The top picks in aerospace and defence include Rolls-Royce Holdings (LSE:RR.), despite 2023’s jump of 221% after free cash flow rebounded due to restructuring and the recovery in air travel.

The bank thinks there’s more to come after highlighting a target price of 420p, which compared with 318p this afternoon. It continues to view the valuation as attractive versus peers, particularly as the balance sheet is no longer a concern.

The bank told clients: “As one of the cheapest civil aerospace assets globally today, we see potential for strong re-rating in 2024.”

Shell (LSE:SHEL) has a 3,300p target price, an upside of 36% that’s driven by the oil giant’s position as one of the most cash flow-generative in its peer group.

The bank likes the low breakeven oil price in Shell’s upstream portfolio and leading role as global LNG supplier, with exposure to upside in gas prices from tighter-for-longer LNG markets.

Coupled with continued disciplined oil and gas capital expenditure, the bank believes Shell can expand its portfolio of low-carbon assets while growing shareholder distributions.

The “buy” recommendation for Rio Tinto alongside a 8,000p target price reflects solid cash flows from tier one assets and a dependable dividend yield. The big upside from today’s 5,321p is also driven by a more optimistic view on iron ore prices than the rest of the market.

On Flutter, the bank believes the FanDuel operation is best placed to capture market share in the liberalising US sports betting market.

It said: “The group is the largest listed online gaming operator, which we believe offers a great way to get exposure to the global online gaming market which is in growth, and should be further supported by more switches from black/grey to the white market.”

Shares are valued at 17,000p, having rallied by 20% to 16,535p so far this year.

The potential upside for Informa is 30% to 1,050p as the bank expects shares to re-rate as confidence in the company’s transformation into a faster-growing and more digital events and academic publishing business builds.

The significant room for margin expansion as FTSE 250-listed Babcock continues its turnaround means the shares have been backed with a target price of 565p.

The bank said: “Babcock will resume dividends from 2024 and we see the potential for buybacks from 2026 onwards. Additionally, a higher percentage of revenues generated through defence end markets should underpin a re-rating.”

Support for specialist insurer Beazley through a 775p price target is driven by the delivery of  above-sector growth and returns.

The bank said: “The stock offers attractive gearing into the commercial insurance pricing cycle, including a leading position in cyber insurance. We see an attractive combination of growth and capital return over the coming years.”

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