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The Expert View: RBS, Sainsbury’s and Standard Chartered
Our daily roundup of analyst commentary on shares, also including Provident Financial and Restaurant Group.
by Michelle McGagh on Mar 10, 2016 at 05:00
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Value in RBS could begin to emerge
Royal Bank of Scotland (RBS) has been upgraded despite its core value remaining ‘trapped in a larger, more challenged group’.
Berenberg analyst James Chappell upgraded his recommendation from ‘sell’ to ‘hold’ with a target price of 250p. The shares edged 0.6% higher to 231.4p yesterday.
‘In our view, RBS has a strong core business, a solid capital position and a management team that is rightly focused on cutting costs and managing returns,’ he said.
‘However, like a Russian doll, RBS’ core value remains trapped in a larger, more challenged group. We think RBS’ core value may soon begin to emerge as non-core falls from 25% to 15% of risk-weighted assets by 2017. While losses from non-core, conduct and payment of the dividend access share are likely to erode tangible book value further during 2016, we now think this is reflected adequately in the 30% discount to our 2016 tangible book value.’
Standard Chartered downgraded on 2016 prospects
Standard Chartered (STAN) has been downgraded on a worse-than-expected 2016/17 revenue outlook.
Investec analyst Ian Gordon downgraded his recommendation from ‘hold’ to ‘sell’ and cut the target price from 460p to 445p. The shares fell 2.3% to 469.5p yesterday.
‘Given a revenue outlook for 2016/17 that appears even worse than we had previously anticipated, and with (we think) relatively limited cost reduction near-term, we forecast that Standard Chartered will be loss-making in 2016, and we continue to see management’s 2018 8% return on equity target as unrealistic,’ he said.
‘That said, given the scale of planned balance sheet reduction, we do believe that Standard Chartered has sufficient capital to work through a fundamental repositioning of the business, but after a 23% two-week rally, we downgrade from “hold” to “sell”.’
Upbeat Q4 statement expected from Sainsbury’s
Fourth quarter results from Sainsbury’s (SBRY) are likely to be upbeat as they come just before formal bids for Home Retail Group are submitted.
Jefferies analyst James Grzinic retained his ‘hold’ recommendation and target price of 280p on the shares, which were broadly flat at 266.8p yesterday.
‘The timing of Sainsbury’s Q4 interim management statement is of particular significance as it comes just before the Home Retail Group bid deadline,’ he said.
‘We expect an upbeat Q4 from Sainsbury’s, albeit one not inconsistent with the previous run rate of like-for-like of close to flat. Current terms are unlikely to secure Argos, and the grocer’s financial discipline could be tested in the weeks to come.’
But Grzinic warned that ‘any protracted volumes recovery at Tesco would come at a disproportionate cost to Sainsbury’s’.
Falling sales at Restaurant Group concern analysts
Restaurant Group (RTN), which owns Frankie & Benny’s and Garfunkel’s, has reported falling sales and analysts expect further de-rating.
Shore Capital analyst Greg Johnson retained his ‘hold’ recommendation but does not have a target price on the stock following full-year results that reported an in-line 11% increase in profit before tax.
‘The outlook statement is disappointing with like-for-like sales down 1.5% in the first 10 weeks of the financial year, against our expectations of c.+1.5% for the full year,’ he said. Shares in the stock plunged 22.7% to 420p yesterday on the news.
‘Management highlight increasing competitive pressures, especially around the Frankie & Benny’s brand, with like-for-like sales growth likely to prove difficult to deliver going forward although the group remains confident of “making profitable progress in 2016 and the years ahead”.
Johnson added: ‘We have long argued that the valuation was fully factoring the group’s long-term roll-out programme without any discount for the vagaries of the consumer and hence see scope for a further de-rating with the shares likely to fall sharply [following the results]. We see value at below the 500p level…although visibility in the ability to maintain like-for-like profitability that would provide a floor is clearly lacking.’
Higher tax rate for Provident Financial won’t affect profits
Higher tax rates for payday lender Provident Financial (PFG) will see earnings per share fall slightly but profits for the next two years are expected to grow.
Peel Hunt analyst Stuart Duncan retained his ‘hold’ recommendation and increased the target price from £31.00 to £31.30. The shares fell 12p to £30.90 yesterday.
‘We have updated our model following recent results, with a minimal impact on future expectations. Our earnings per share forecasts fall by c.1% for the next two years, largely as a result of an increased tax rate offsetting higher profits,’ he said.
He added that profit forecasts for 2016 and 2017 remained at 5% in both years.
‘Underlying divisional profits for both [the consumer credit division] and [credit card business] Vanquis increased modestly, with Vanquis again delivering stronger growth than originally anticipated,’ he said. ‘Our forecasts assume a risk adjusted margin of 32.2% in full year 2016, in line with the guidance of a modest deterioration to the 32.8% reported in full year 2015.’
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Look up the shares
- J Sainsbury PLC (SBRY.L)
- Restaurant Group PLC (RTN.L)
- Standard Chartered PLC (STAN.L)
- Royal Bank of Scotland Group PLC (RBS.L)
- Provident Financial PLC (PFG.L)