Broker tips: Banks, M&S, Morgan Crucible

15th May 2009 12:36

Barclays, already fielding bids for its iShares business, was buoyed Friday morning by rumours of a sale of the whole of its asset management arm. US group Blackrock is rumoured to be interested in buying the unit and may be prepared to pay up to $10bn. Little wonder, then, that Keefe, Bruyette & Woods (KBW) has selected Barclays as its preferred play among the UK-focused banks. KBW has raised its price target on Barclays from 170p to 270p after being impressed by the performance of Barclays Cap (BarCap), the investment banking arm of Barclays. The broker is less enamoured of the part-nationalised banks, Lloyds Banking Group and Royal Bank of Scotland, both of which are set to under perform the market, KBW believes. Looking more globally, HSBC is its top choice in the sector; while Standard Chartered’s first quarter update ‘provided additional reassurance that the group is moving in the right direction,’ the broker believes the shares are fairly priced at present. With Marks & Spencer still undecided on the identity of its new chief executive officer, Investec has weighed in with some hard hitting advice for the new boss, whoever it may be. The broker has set out its own five-point plan to revive the fortunes of the High Street giant which, it claims, is too focused on competing with Tesco and AB Foods’ owned Primark on price. Overseas expansion should be put on the back-burner while problems at home are addressed, the broker believes. It scathingly described M&S’s response to tough trading conditions as: ‘Beat up suppliers; tart up stores; er … that’s it.’ On the subject of succession at the top, Investec does not see anyone on the management team as worthy of stepping into Sir Stuart Rose’s shoes since the latter’s elevation to executive chairman. ‘We do not see the next chief executive as within the ranks, and indeed question whether the operational team needs to be strengthened in general merchandise.’ Of more immediate concern to shareholders is the suggestion that the company should acknowledge pressures on its balance sheet by announcing a dividend cut when it announces full-year results on Tuesday, 19 May. Investec, which is forecasting full-year pre-tax profits for M&S of £620m, suggests that the full-year dividend should be cut to 15.5p, compared to 22.5p last year. This implies a final dividend of 7.2p, virtually half the 14.2p paid in the second half of last year. KBC Peel Hunt has downgraded Morgan Crucible after the engineer said on Friday morning that it expects markets to get worse before they improve. ‘Based on the reduced order visibility, late-cycle bias, operational and financial gearing, plus the £100m pension deficit we are downgrading our recommendation to SELL and cutting our target price to 80p,’ said KBC analyst Dominic Convey. The broker previously rated the shares a 'hold' and had a price target of 115p.