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The Expert View: Lloyds, Bovis & Mattioli Woods
by Michelle McGagh on Mar 25, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including BAE Systems and Royal Bank of Scotland.
Investec upgrades Lloyds as it addresses analyst concerns
Investec has upgraded Lloyds (LLOY.L) to a ‘buy’ from ‘hold’, saying that it is now ‘safe to go back in the water’.
Analyst Ian Gordon upgraded the stock and maintained a target price of 85p after downgrading to ‘hold’ in January.
At the time of the downgrade Gordon was concerned about ‘frothy 2013 sell side forecasts’, the cost of putting right payment protection insurance (PPI) mis-selling, the unwinding of exchange capital notes (ECNs), declining income and the potential impact of the next leg of the government’s sale of its stake in the bank.
Gordon said ‘the first four have now been addressed and we are less afraid of [government overhang]’.
‘We do believe the government’s residual 32.7% stake will act as a constraint to share price performance during 2014, but do not particularly see the “glass ceiling effect” as in play at current levels,’ he said.
Bovis upgraded after signing two deals
Numis has upgraded Bovis Homes Group (BVS.L) as it signs two deals to deliver 510 homes to the private sector rental market.
Analyst Chris Millington upgraded the stock from ‘hold’ to ‘add’ and maintained a target price of 960p on the back of the deals. He also increased estimates of profits before tax for both 2014 and 2015.
For 2014, estimates have been increased from £121.7 million to £128.5 million and earnings per share from 71.7p to 75.5p. For 2015, they have been hiked from £143.7 million to £149.1 million and earnings per share from 85.7p to 88.7p.
‘In our view this is a good deal and enables Bovis to bring forward revenue/profit from longer term sites. This should result in higher levels of return on average tangible common shareholders’ equity which in turn should support a higher valuation,’ he said.
BAE shakes off cuts in US defence spending
US cut backs in defence spending are of no concern to Cantor analysts who still favour defence and aerospace group BAE Systems (BA.L).
Following a briefing with BAE chief executive Ian King last week analyst Andy Chambers maintained his ‘buy’ recommendation and target price of 460p.
‘While nothing has changed since the prelims were announced last month, we nevertheless remain encouraged that the company continues to produce a high level of earnings and stable cash flows despite adverse budgetary conditions in the US,’ he said.
The UK business continues to grow and aircraft production is expected to remain stable.
‘Whilst cash flow will reverse significantly this year due to down payment consumption, the share buy-back continues and the dividend yield remains healthy,’ said Chambers.
RBS to gain most from interest rate rises
As the prospect of an interest rate rise moves closer, Royal Bank of Scotland (RBS.L) has the most to gain, according to Jefferies analysts.
Joseph Dickerson maintained a ‘buy’ recommendation and a target price of 414p on the shares after US Fed actions increased expectations for a rate rise and Bank of England governor Mark Carney’s ‘vaguely hawkish comments’.
‘We analysed the interest rate sensitivity disclosure of the UK banks,’ said Dickerson. ‘All of the listed UK banks screen as at least modestly asset sensitive…RBS is the most asset sensitive, with a prospective 11% 2016 pre-tax profit uplift…Barclays screens least sensitive.’
Dickerson added: ‘Asset sensitivity is further optionality on our investment case for RBS. RBS is a high conviction buy call predicated on balance sheet optionality – driven by an expected £8 billion of excess capital in 2016.’
Budget boost for pensions to benefit Mattioli Woods
Pensions administrator and financial adviser Mattioli Woods (MTW.L) has been upgraded following Budget changes that it believes will boost savings and pensions business.
Canaccord analyst Robin Savage upgraded the stock from ‘hold’ to ‘buy’ and increased the target price from 406p to 460p after the Budget brought in increased pensions flexibility to allow people to draw down their pensions more freely, plus the launch of the New ISA with a £15,000 limit.
‘Increased flexibility will increase the incentive to save in defined contribution (DC) pension plans, while those in retirement may make more use of the drawdown facility,’ said Savage. ‘These initiatives, coupled with other improvements in savings mean that Mattioli Woods’ wealth management business should see increased net inflows.
‘While further detail is awaited on the government’s plans, the acknowledgement of the need for advice may drive further demand for Mattioli Woods’ employee benefits and wealth management services.’