Babcock rises as RBC initiates at Outperform on turnaround, capital strength

Investing.com -- RBC Capital Markets downgraded Close Brothers Group (LON:CBRO) to “sector perform” from “outperform,” saying the bank’s sharp share price recovery this year has left little room for further gains, in a note dated Monday. 

Shares of the merchant banking group were down 1.4% at 03:43 ET (07:43 GMT).

The analysts noted that Close Brothers’ stock has risen about 120% year to date and now trades at 0.56 times one-year forward tangible book value, compared with a long-term average of 1.56 times. 

The shares remain well above the November 2024 low of 0.21 times, but the valuation discount of 0.48 times to U.K. peers contrasts with a historical premium of 0.53 times.

The downgrade follows the Supreme Court ruling on motor finance commissions on Aug. 1, which RBC described as a clearing event for the sector. 

The brokerage has already set aside £165 million in provisions, close to RBC’s modeled impact of £170 million. For the wider industry, the analysts continue to forecast an impact of about £12 billion.

Under different redress assumptions, RBC projects a pre-tax profit impact for Close Brothers of £115 million in an upside scenario, £171 million in its base case, and £214 million in a downside scenario.

Profitability remains subdued compared with peers. RBC estimates Close Brothers’ adjusted return on tangible equity at 6% in fiscal 2025, falling to 5.6% in 2026 before recovering to 7.3% in 2027. 

That compares with an 8.3% return delivered in 2024 and remains 7.2 percentage points below U.K. peers’ average of 13.1%. 

Adjusted diluted earnings per share are forecast at 55.13p for 2025, 53.12p for 2026 and 73.90p for 2027, down from 76.26p in 2024.

The brokerage held its price target at 525p, close to the current market level of 516p.

Its scenario analysis sets out an upside case of 625p, reflecting potential regulatory and litigation wins, and a downside case of 150p, assuming higher-than-expected costs from motor finance remediation.

The analysts removed the “speculative risk” label previously attached to the stock.

Close Brothers’ capital position is forecast to remain above regulatory minimums. The CET1 ratio stood at 12.8% in 2024 and is projected at 13.4% in 2025, 14.2% in 2026 and 13.7% in 2027. Tangible book value per share is expected to rise from 921p in 2024 to 1,039p in 2027.

Income trends remain pressured. Total income is estimated at £762 million in 2025, falling to £722 million by 2027. Expenses are projected at £542 million in 2025, easing to £454 million by 2027. 

Pre-provision profit is seen at £221 million in 2025, £222 million in 2026 and £268 million in 2027. 

Impairments are expected to remain steady at around £93-98 million per year, leaving adjusted pre-tax profit at £127 million in 2025, £128 million in 2026 and £170 million in 2027.

Dividend payments remain suspended in the near term, with RBC forecasting a resumption in 2027 at 30p per share, equating to a 5.8% yield.

Net customer loans are projected at £9.85 billion in 2025, £10.19 billion in 2026 and £10.62 billion in 2027. 

The net interest margin is forecast at about 7% across the period, with cost of risk stable at 0.9%.

RBC said that while catalysts such as dividend reinstatement, regulatory approval of internal ratings models, or a settlement related to Novitas could provide upside, they are unlikely in the short term. 

Investing.com -- Shares in wind turbine maker Vestas Wind Systems (CSE:VWS) soared more than 11% on Monday, driven by the updated U.S. guidance on renewable tax credits.

The new rules clarify how projects can qualify under the One Big Beautiful Bill’s safe-harbor provision, which allows assets that begin construction before July 4, 2026, to access the more generous Inflation Reduction Act (IRA) credits.

According to RBC Capital Markets analysts, the change benefits Vestas, easing earlier concerns about stricter qualification requirements.

The broker maintained its Outperform rating on the stock with a price target of DKK 128.

The uncertainty over the definition of project commencement had been holding back order activity, RBC said.

The guidance follows the U.S. Treasury’s release of Notice 2025-42, which sets updated criteria for when construction is deemed to have started on renewable projects eligible for ITC and PTC credits.

For most projects, developers can no longer rely on the so-called 5% Safe Harbor based on early expenditures alone.

Instead, they must demonstrate “physical work of a significant nature,” such as foundation excavation, concrete pouring, or the manufacture of wind turbine components tied to specific contracts.

In addition, projects must maintain continuous activity over a maximum of four calendar years, though exceptions apply for external delays like permitting or grid connections.

“All in all, we see this as a fairly positive development vs earlier fears of more stringent restrictions,” RBC analysts led by Colin Moody said.

They added that qualification rules “seem largely manageable, and we expect OEMs and their customers will be able to shuffle workloads around to ensure maximum qualification until 2030-end.”

While Vestas has already booked some U.S. orders, RBC expects the tax credit update to provide “incremental impetus” to further activity.

Investing.com -- Hugo Boss has demonstrated improved execution this year by focusing on cost efficiency in a challenging premium apparel market environment, according to RBC.

The company has shown strong cost control, with operational expenses growing just 1% over the last 12 months.

RBC analysts noted a narrowing gap between Hugo Boss’s constant currency sales growth and its operational expense growth from early 2024, coinciding with moderating sales growth.

RBC expects further savings to come in the second half of 2025, particularly as Hugo Boss continues to generate efficiencies from its store portfolio and administrative expenses.

The company has also taken reassuring actions to mitigate the impact of US tariffs.

Despite global consumer uncertainty and US tariff news creating a tough backdrop for premium apparel, some positive trends have emerged in key markets in July.

UK apparel sales have accelerated, and US airport footfall has shown an inflection point. Hugo Boss is also expected to see support in the second half from moderate price increases, which should benefit gross margin.

The company’s valuation remains undemanding at approximately 12x CY25e P/E, implying more than a 50% discount to the wider luxury sector compared to a historical average discount of 33%.

RBC believes Hugo Boss is seeing valuation support from Frasers Group’s stake, which now exceeds 50% on a total basis (approximately 25% direct). This support is not expected to ease soon, as Frasers Group has been steadily increasing its exposure for over a year.

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Legence Corp. filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission for a proposed initial public offering of Class A common stock shares, according to a company statement. The company applied to list its shares on the Nasdaq Global Select Market under the ticker symbol "LGN."

The number of shares to be offered and the price range for the proposed offering have not been determined. Goldman Sachs & Co. LLC and Jefferies are serving as joint lead book-running managers for the offering.

Additional bookrunners include BofA Securities, Barclays, Morgan Stanley, RBC Capital Markets, Societe Generale, BMO Capital Markets, Cantor, Guggenheim Securities, Wolfe | Nomura Alliance, MUFG, Roth Capital Partners, Santander, Stifel, TD Cowen, BTIG and Rothschild & Co. Blackstone Capital Markets is acting as co-manager.

The registration statement has been filed with the SEC but has not yet become effective. The offering remains subject to market conditions and regulatory approval, with no assurance regarding completion timing or final terms.

Investing.com -- The London Stock Exchange Group’s (LON:LSEG) £8 billion market value drop this quarter has created a buying opportunity, RBC Capital Markets analysts say, arguing the selloff on workflow business concerns was disproportionate to its impact on the group.

The bank reiterated its Outperform rating and 13,200p price target.

The recent weakness has been tied to worries over the Workflows segment, particularly slowing annual subscription value growth and potential threats from agentic AI. RBC analyst Ben Bathurst acknowledged “some concern may be rational” but said “the share price reaction has been outsized.”

Workflows, which includes the Workspace desktop platform, accounted for 22% of revenue in the first half of 2025, but RBC estimates it generates only about 11% of group profits and just 8% of total valuation on a peer multiple basis.

The broker’s sum-of-the-parts analysis showed 15% upside for LSEG shares even if Workflows’ profit was valued at zero.

Bathurst pointed to positives from the first-half results, including stronger numbers, higher capital returns and reaffirmed guidance, which it said had been overshadowed by the concerns.

He also noted that LSEG trades at a full-year 2026 (FY26) price-to-earnings (P/E) multiple of 21x, about a 25% discount to data provider peers.

Bathurst sees the upcoming Innovation Forum on November 10 as a chance for management to address AI-related questions and showcase product rollouts from the Microsoft partnership.

He said stable or improving revenue growth for Workflows in the fourth quarter could reassure the market on competitive dynamics.

RBC’s discussions with CEO David Schwimmer and the investor relations team suggested no widespread change in competitive pricing, describing aggressive discounts as “one offs” rather than an industry trend.

Management expressed confidence in the sales pipeline and the long-term relevance of its desktop and data offerings despite emerging AI tools.

“We see an attractive risk/reward at LSEG’s current valuation,” Bathurst said, adding that the discount to peers is “becoming more difficult to justify.”