Broker tips: Lloyds Banking Group, Barclays, TinyBuild

(Sharecast News) - The positive investment case for British banks is starting to weaken, JP Morgan said on Tuesday, as it reiterated Lloyds Banking Group as its top pick but cut its rating on Barclays. The US bank said that the "shift in the UK economic outlook", including higher inflation and negative GDP revisions, was "starting to cloud the positive case for the banks, which rests on higher rates in our view".

It continued: "[We] conclude that the current rate hike cycle is more positive for net interest income relative to market expectations and versus the 2017 cycle based on our proprietary dataset that goes back over five years."

It reiterated that Lloyds, already its top pick, was best positioned, but cut its rating on Barclays to 'neutral' from 'overweight' as in no longer sees "a catalyst for unlocking the valuation discount" for its corporate and investment banking units and was also growing wary of the potential for higher costs and a more challenging non-NII outlook".

JPM added: "Some of the NII drivers, however, will likely start to turn in the second half of 2022 and our earnings per share forecasts are now below consensus across the board, due to the higher cost of risk which is not reflected in consensus."

Analysts at Berenberg cut their target price on video games publisher TinyBuild from 325.0p to 250.0p on Tuesday but said the group's business model was continuing to show strength.

Berenberg said despite challenges faced by the industry in 2021, TinyBuild's results, published earlier in the day, showed it had managed to successfully buck the trend, with no disruption, delivering growth of 39% - the vast majority of which was organic.

In addition to this, Berenberg highlighted that by generating 11% higher sales from the intellectual property it owns/partially owns versus IP that it publishes, the company's margins had expanded and allowed it to deliver 64% underlying earnings growth in the year.

The German bank also added that with TinyBuild's back catalogue expected to deliver roughly 70% of revenues in 2022, plus a de-risked new catalogue via licence deals and predictable DLC/early access content, it said it was confident in the group achieving its 2022 forecasts.

"Overall, with the shares having halved since highs last year, despite earnings per share upgrades, we think now is the time to revisit the shares on circa 21x price-to-earnings. We retain our 'buy' rating but move our price target to 250.0p," said Berenberg.