The Expert View: Lloyds, Barclays and RSA Insurance

Our daily round-up of analyst recommendations and commentary, featuring Lloyds, Barclays, RSA Insurance, ASOS and Interserve.

Key stats
Market capitalisation	£38,307m
No. of shares out	70,424m
No. of shares floating	42,555m
No. of common shareholders	not stated
No. of employees	120449
Trading volume (10 day avg.)	102m
Turnover	£26,316m
Profit before tax	£-2,787m
Earnings per share	-4.07p
Cashflow per share	-0.90p
Cash per share	88.25p

*Correct as at 22 Feb 2013

No dividend yet, but Lloyds is a ‘buy’

Lloyds Banking Group (LLOY.L) is ‘set to deliver rising margins, falling costs and falling provisions, combining to drive a strong upswing in profitability over the next few years,’ say analysts at UBS. But don’t expect a dividend yet.

In a note ahead of the part-start owned bank’s 2012 results announcement on Friday, UBS analyst John-Paul Crutchley says the shares are still a ‘buy’, with a 60p price target.

‘We expect FY 2012 pre-tax profits of £-412m on a statutory basis, including £3.3bn in restructuring and provisioning charges including additional PPI charges. We would not be surprised if the company were to increase its provisions for PPI redress by up to £1.3bn,’ he notes.

This increase would however be part of a ‘comforting’ decline in costly mis-selling payouts, the analyst adds.

Crutchley has this to say of investors’ hopes for a dividend payout: ‘While there is a debate around dividends at the UK banks following Barclays declaration that it intended to increase its dividend payout ratio over time, we think it unlikely that Lloyds will be able to pay a dividend until it can show that it is able to meaningfully accrete equity.’

Shares in the group closed at 54.9p on Friday, up 0.9p or 1.7%.

Key stats
Market capitalisation	£38,773m
No. of shares out	12,623m
No. of shares floating	10,874m
No. of common shareholders	not stated
No. of employees	139200
Trading volume (10 day avg.)	60m
Turnover	£19,199m
Profit before tax	£-1,041m
Earnings per share	-8.52p
Cashflow per share	7.10p
Cash per share	703.89p

*Correct as at 22 Feb 2013

Investec upgrades Barclays to 'buy'

Investec analyst Ian Gordon has upgraded Barclays (BARC.L) from 'hold' to 'buy', saying the recent decline in the shares looks overcooked.

Although Gordon said he's unwilling to join the growing ranks of the 'Barclays £4 club', he believes the post-results retracement is excessive in both relative and absolute terms. His new target price, which takes into account recent sterling/US dollar moves, is 345p, up from 340p.

'We caution that our target price is a 12-month view, and, this time around, we expect it to take 12 months, and not 12 days, for shareholders to enjoy the about 15% total return we now forecast,' he added.

Shares in the group closed at 307p on Friday, up 0.8p or 0.3%.

Key stats
Market capitalisation	£4,169m
No. of shares out	3,553m
No. of shares floating	3,549m
No. of common shareholders	not stated
No. of employees	23240
Trading volume (10 day avg.)	19m
Turnover	£8,735m
Profit before tax	£417m
Earnings per share	11.78p
Cashflow per share	17.62p
Cash per share	35.63p

*Correct as at 22 Feb 2013

Canaccord reiterates 'hold' on battered RSA Insurance

Canaccord analyst Ben Cohen has increased his target price for RSA (RSA.L), the insurance group whose shares took a dive on Wednesday after it announced a cut to its dividend, saying the shares remain a 'hold'.

The shares lost 13.5% last week after the group announced it would pay a final dividend 33% below last year's. RSA chief executive Simon Lee said the cut, which reflected expectations that bond yields will remain at rock-bottom, was 'in the best interest of our shareholders'.

Cohen said the timing of the move was surprising. 'Recent developments for yields if anything have been positive: the UK 10-year yield has risen by 37 basis points since the year-end,' he said. 'We think that the recent rise in the share price might havemade the decision to make the cut at this time a little easier for the board.'

Nonetheless, his financial model supports a 9% rise in the target price. 'The basis of our price target – 9x forward earnings – is unchanged, although we have rolled forward to 2014 as the basis, raising our price target from 110p to 120p.'

Shares in the group closed at 117p on Friday, down 0.7p or 0.6%.

Key stats
Market capitalisation	£2,295m
No. of shares out	82m
No. of shares floating	49m
No. of common shareholders	not stated
No. of employees	842
Trading volume (10 day avg.)	0m
Turnover	£495m
Profit before tax	£22m
Earnings per share	26.74p
Cashflow per share	36.43p
Cash per share	31.53p

*Correct as at 22 Feb 2013

ASOS won't be Amazon's next victim, Morgan Stanley says

Ubiquitous online retailer Amazon's move into fashion shouldn't worry ASOS (ASOS.L) investors, according to Morgan Stanley analyst Anisha Singhal, who has an 'overweight' recommendation on the shares.

Amazon is determined to make inroads into the sector, according to Singhal, but she listed five reasons why investors can rest easy:

1. Amazon is going to target high-end fashion, whereas ASOS is aimed at the value-fashion segment.
2. Many of the the big fashion brand owners are reluctant to supply Amazon, viewing it as a ‘commoditised’ website that could taint their status.
3. Amazon won't be able to outcompete on price, again because brand owners don't want to risk the prestige of their labels.
4. As price isn't the battleground, it's all about 'customer propositions' - an area where ASOS is well ahead with lots of editorial content, free delivery globally, free returns, and click and collect in the UK.
5. Less than half of ASOS’s sales are from branded products, and own-brand lines offer higher margins.

Singhal has a target price of £30 on ASOS.

Shares in the group closed at £28.22 on Friday, up 66.6p or 2.4%.

Key stats
Market capitalisation	£598m
No. of shares out	127m
No. of shares floating	121m
No. of common shareholders	not stated
No. of employees	50000
Trading volume (10 day avg.)	0m
Turnover	£1,848m
Profit before tax	£58m
Earnings per share	44.66p
Cashflow per share	74.07p
Cash per share	36.64p

*Correct as at 22 Feb 2013

Westhouse downgrades Interserve

Westhouse analyst Michael Donnelly has cut his recommendation for support services and construction company Interserve (IRV.L) from 'buy' to 'add' following a strong run for the shares.

The shares have outperformed the market by an impressive 19% since November, Donnelly noted. 'We remain firm fans of Interserve’s strategy and believe that its exposure to the attractive Qatari market (20% of pre-tax earnings) and likely increase in its return on capital employed/weighted average cost of capital in the current year sets it apart from peers,' he said.

'However, we believe that organic upgrades to consensus forecasts on the back of the 27 February prelims are unlikely at this stage.' The analyst's target price rises 24% to 537p to take account of recent public finance initiative wins and acquisitions, but the 13% upside this leaves makes the shares an 'add'.

Shares in the group closed at 470p on Friday, down 3.1p or 0.7%.