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The Expert View: Lloyds, RBS and AstraZeneca
Our daily roundup of analyst commentary on shares, also including Conviviality Retail and Paysafe.
by Michelle McGagh on Feb 02, 2016 at 05:00
Lloyds dividend could reach 4.7p by 2017
Lloyds (LLOY) is expected to grow its dividend to 4.7p per share by 2017 as analysts are confident that net interest margins can increase.
Jefferies analyst Joseph Dickerson retained his ‘buy’ recommendation and decreased the target price from 104p to 101p. The shares fell 1.9% to 64.2p yesterday.
‘We believe Lloyds can grow ordinary dividend per share to 4.7p per share in 2017, driven by a strong capital base and improving earnings quality,’ he said. ‘Recent data give us conviction that net interest margins can rise to 2.75% in 2017, leading to earnings per share 13% ahead of the consensus.’
He added that Lloyds is expected to ‘achieve 16% return on required equity by 2017’ and ‘this combined with £3.5 billion of excess capital, generates a price target of 101p’.
However, the amount of excess capital is likely to be dictated by the size of future payment protection insurance mis-selling compensation, which Dickerson expects to hit £2 billion in the bank’s fourth quarter.
Has RBS landed a new buyer for Williams & Glyn?
Reports suggest Secure Trust Bank has thrown its hat in the ring as a potential acquirer small business lender Williams & Glyn, which is owned by RBS (RBS).
Shore Capital analyst Gary Greenwood retained his ‘buy’ recommendation on RBS but does not have a target price. The shares fell 1.4% to 249.1p yesterday.
RBS last year announced it had received a number of offers for Williams & Glyn, which it is mandated to spin off by the end of 2017, and is looking for a sale agreement by the end of 2016 while also continuing plans for an initial public offering. Virgin Money and Santander are rumoured to be potential suitors.
‘However, according to reports in the Sunday Times, AIM-listed Secure Trust Bank is now also seriously considering making an offer to acquire Williams & Glyn,’ said Greenwood.
‘This is an interesting development as Secure Trust Bank is considerably smaller than Williams & Glyn so such an acquisition would essentially represent a reverse takeover.’
Greenwood doubts RBS would accept a deal as the bank is too small.
‘We doubt that RBS would be keen to take Secure Trust Bank equity as consideration and hence we think that Secure Trust Bank would therefore need to approach existing investors to finance the transaction, presumably by way of a placing or rights issue,’ he said.
AstraZeneca pipeline growth boosts rating
Pharmaceutical giant AstraZeneca (AZN) deserves a premium rating for the strong growth that will emerge after 2017, according to Barclays.
Analyst Mark Purcell reiterated his ‘equal weight’ recommendation and target price of £50.00 on the shares, which were broadly flat at £44.71 yesterday.
‘Focus remains on pipeline, not near-term numbers,’ he said. ‘We expect AstraZeneca to report Q4 2015 earnings per share of $0.99 (69p) (versus $0.96 (67p) company compiled consensus) and to guide for full-year 2016 earnings per share in-line with full year 2015 on a coupon equivalent rate basis.
‘The key focus remains execution on the oncology pipeline and emerging competitive data, given that the standard of care continues to shift quickly especially in immune-oncology, potentially impacting fast-followers like AstraZeneca.’
Purcell added: ‘We believe that AstraZeneca deserves a premium multiple for the strong growth that emerges post 2017.’
Conviviality raises a glass to strong results
Drinks wholesale group Conviviality (CVRC), which owns Bargain Booze and Wine Rack, has reported a positive first half following the acquisition of Matthew Clark in October.
Investec analyst Alistair Davies retained his ‘buy’ recommendation and increased the target price from 230p to 245p on the AIM-listed stocks. The shares rose 2.9% to 205.8p yesterday.
‘A positive H1 update highlights that the underlying businesses are trading in line with expectations, with reassuring growth seen in stores/franchises and strong sales at Matthew Clark,’ he said.
‘Management states that its integration plans are running ahead of schedule, with buying gains expected to beat Investec estimates. We upgrade full-year 2017 estimated profit before tax by c.6% and full-year 2018 estimates by c.5% and see upside risk.
‘Realisation of synergies and continued delivery in core businesses should drive a rerating, in our view.’
Paysafe valuation at ‘significant discount’ to peers
Mobile payments company Paysafe (PAYS) is trading on a discount to peers despite its strong growth potential.
Deutsche Bank analyst Johannes Schaller retained his ‘buy’ recommendation and increased his target price from 410p to 500p. The shares rose 1.1% to 404.8p yesterday.
‘While we believe markets appreciate Paysafe’s strong growth prospects in online payments, there remains a significant valuation discount to peers,’ he said.
‘We attribute this largely to concerns around the company’s risk from single customer concentration as well as operating in the gaming and gambling space.
‘Paysafe’s recent trading update and management commentary on a subsequent investor roadshow provided several points to alleviate such concerns. An increased focus on reducing risk factors for the business should warrant a further rerating closer to peers.’
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Look up the shares
- Lloyds Banking Group PLC (LLOY.L)
- AstraZeneca PLC (AZN.L)
- Paysafe Group PLC (PAYS.L)
- Conviviality PLC (CVRC.L)
- Royal Bank of Scotland Group PLC (RBS.L)