Broker tips: S&U, UK utilities

22nd May 2026 15:41

(Sharecast News) - Berenberg lifted its recommendation on S&U on Friday, while JPMorgan said recent political uncertainty had created a buying opportunity in UK utilities.

Berenberg upgraded S&U to "buy" from "hold" and raised its price target to 2,310p from 2,220p, saying it had become increasingly positive on the specialist lender's medium-term outlook after the company's first-quarter update earlier this week.

"We make no changes to our estimates in this note but reframe our investment case following a change of analyst," Berenberg said.

The bank said S&U appeared to be moving closer to agreeing a new funding facility, which Berenberg estimated could add £300m of debt capacity over the next three years to its existing available debt of around £330m.

"We expect that this additional funding should support net receivables growth of 20% CAGR from FY26 to FY29E from £497m to £857m," Berenberg said.

It estimated that this, together with the funding mix, could lift return on tangible equity to 12.4% in FY29 from 9.5% in FY26, while earnings per share could grow at a 16% compound annual rate to 306p from 195p.

Berenberg said the company should be able to use the additional funding to take advantage of growing markets in its Advantage Finance motor finance business and Aspen Bridging division.

It added that Advantage's end-markets were supported by a more stable regulatory environment, while Aspen should benefit from weaker housing affordability and tighter regulation in the buy-to-let market.

"We see the company delivering these expectations while improving its dividend payment further, resulting in a yield of circa 7.5% in FY29E," it said.

Separately, JPMorgan said it saw an opportunity in UK utilities, arguing that investor concerns over political risk, particularly around nationalisation in the water sector, were overdone.

The bank said recent calls for prime minister Keir Starmer to resign, alongside speculation over potential Labour leadership alternatives including Wes Streeting and Andy Burnham, had prompted investor questions over policy risk.

"Alongside this we have seen initial views of policy, varying from the 'stronger public control' view of Mr Burnham to the Labour Growth Group caucus of MPs pushing for the government to bring zonal pricing back to the table," JPMorgan said.

"Our conversations with investors have primarily focused on nationalisation risk, especially for the UK water names - we see these concerns as overdone."

JPMorgan said overweight-rated Centrica and Drax should be better placed against the uncertain backdrop, given their exposure to higher and more volatile power prices and under-levered balance sheets, which it said provided protection against higher yields.

The bank said it preferred UK electricity networks exposure through overweight-rated SSE over National Grid, also rated overweight, although it acknowledged that investors may favour National Grid's more defensive business mix and US exposure.

JPMorgan remained neutral on UK water stocks but said investors were underestimating the benefit of inflation in driving stronger-than-expected returns on equity, alongside greater regulatory asset base growth than it had expected when it downgraded the sub-sector six months ago.

Within water, it said it preferred Pennon and United Utilities to Severn Trent, with the former two trading at FY30 discounts to regulatory asset base.

Reporting by Josh White for Sharecast.com.