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The Expert View: RBS, Aviva and Persimmon
Our daily round-up of analyst recommendations and commentary, featuring Carillion and BHP Billiton.
by Harry Brooks on Aug 23, 2012 at 05:01
We’ve chosen some of the best comment from analysts to give you their views on Royal Bank of Scotland, Aviva, Persimmon, Carillion and BHP Billiton.
Oriel warns news of US investigation will weigh on RBS shares
Mike Trippitt, analyst at Oriel Securities, has warned of a 'largely unquantifiable investment risk' facing Royal Bank of Scotland (RBS.L) in the wake of reports that US authorities are investigating possible breaches of Iran sanctions.
Yesterday the Financial Times reported that the 83% British taxpayer-owned bank is being examined by the Federal Reserve and the Department of Justice, having volunteered information to them and UK regulators around 18 months ago.
'The intensity of regulatory investigation and litigation risk facing the wider UK banks sector is troubling and, in our view, will continue to provide a largely unquantifiable investment risk at least in the near-term,' Trippitt said.
Trippitt retains a 'hold' recommendation on the shares, saying that although the valuation is undemanding he does not expect a rerating any time soon, particularly given this news of regulatory investigations.
Shares in the group closed at 235.6p on Wednesday, down 1.9p or 0.80%.
Barclays cuts target price for Aviva
Andy Broadfield, analyst at Barclays, has reduced his target price for insurance business Aviva (AV.L) having analysed the likely outcome of a sale of its US business.
He said that if the sale achieved the speculated price of £800 million it would put Aviva into its target solvency range. However, he believes that losses on the sale would offset any rerating it might gain from reaching its solvency target.
'While speculation around a sale could create some price movement, in our view, the real value will only come from the harder and longer-term task of improving the core businesses,' he said.
Broadfield named Allianz as his preferred insurer as it has already sorted out its balance sheet problems, leaving it well placed to capitalise as its rivals concentrate on building up their balance sheets.
Shares in the group, for which Broadfield has a target price of 363p, down from 415p previously, closed at 328.50p on Wednesday, down 5.6p or 1.68%.
UBS lifts target price for Persimmon
Benjamin Rosenberger, analyst at UBS, has increased his target price for homebuilder Persimmon (PSN.L) following a trading update that showed rising margins.
In the six months ended 30 June underlying pre-tax profits increased 65% year-on-year to £98.7 million, with revenues up 13% at £806.7 million. Operating margins rose 320 basis points to 12.2%, beating Rosenberger's forecast of 11.7%.
'The company guided to further slight margin growth for the second half of 2012 and we increase our pre-tax profit and earnings per share forecast by 4%,' Rosenberger said. 'This puts our forecasts 8% ahead of consensus and we expect continued strong earnings momentum.'
Shares in the group, for which Rosenberger has a target price of 820p, up from 800p previously, closed at 690p on Wednesday, down 7p or 1%.
Seymour Pierce says 'buy' Carillion
Caroline de La Soujeole, analyst at Seymour Pierce, has reiterated her 'buy' recommendation on Wolverhampton-headquartered construction company Carillion (CLLN.L) following a trading update that beat her expectations.
Although sales fell 12% over the first half of the year as she had expected, the operating margin rose 80 basis points to 4.1%. Pre-tax profits came in 1% higher at £73.1 million, beating de La Soujeole's £71.4 million forecast.
The firm's focus on cost management in recent years has seen 1,750 jobs lost at the company between 2009 and the end of 2011, according to industry website Construction News.
'We remain positive over the group’s growth prospects. The company has secured £2.2 billion of new and probable orders in the first half and enjoys a record pipeline of contract opportunities of £35.6 billion,' she said.
'The shares are significantly undervalued in our view, trading on a prospective price-to-earnings ratio of 6.2x and yield 6.3%. We remain buyers.'
Shares in the group closed at 269.1p on Wednesday, up 1.3p or 0.48%.
Nomura sticks with BHP Billiton as profits slump
Analysts at Nomura have reiterated their 'buy' recommendation on natural resources company BHP Billiton (BLT.L) despite full-year results that bore the scars of lower commodities prices.
In the year ended 30 June earnings before interest and taxes fell 15% to $27.2 billion. The statement said prices for many commodities fell over the year as worries about the global economic outlook increased. This was compounded by greater supply of some metals.
The update also revealed that the company is to abandon a $30 billion (£19 billion) expansion plan at its Olympic Dam copper and uranium mine in Australia in a bid to strengthen its balance sheet.
In spite of the bad news the company remains Nomura's top pick in the sector along with Rio Tinto.
Shares in the group closed at £19.47 on Wednesday, down 33p or 1.67%.
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Look up the shares
- Aviva PLC (AV.L)
- Persimmon PLC (PSN.L)
- Carillion PLC (CLLN.L)
- Bhp Billiton PLC (BLT.L)
- Royal Bank of Scotland Group PLC (RBS.L)