Broker snap: Investec upgrades Barclays to 'buy'

4th Oct 2013 09:20

Investec has raised its recommendation for banking group Barclays from 'add' to 'buy' and retained its 300p target price despite what is expected to be a 'lacklustre' third-quarter report on October 30th.Analyst Ian Gordon said that the upgrade is due to a combination of: passing rights issues-related headwinds; valuation support; strong expected future dividends; and a potential "over-delivery" of cost-reduction targets.As for the £6bn rights issue, Barclays on Friday announced that it had received valid acceptances in respect of over 3bn of the new discounted shares offered to shareholders (around 95%). Bookrunners who have underwritten the offer will sell the remaining 173m shares today.Gordon said: "Although we continue to regard the imposition of a June 2014 deadline to meet a new and contrived 3% adjusted leverage target as unjustified, the rights issue it triggered appears to have been a reasonably successful exercise in damage limitation. "The consequential earnings dilution, which defers [targets for return on equity to be greater than cost of equity] to 2016e, appears fully 'priced in'."Looking ahead, the analyst cited comments in the rights issue prospectus as saying that the bank "is on track to meet the £18.5bn cost target" this year.Gordon said: "Not good enough! It can, should and, we believe, will do better. Weak FICC trading revenues should be matched/offset by major reductions in variable compensation, while recent rand/US dollar depreciation offers further assistance on sterling costs."The stock was down 0.18% at 272.5p by 09:45 on Friday.BC