Broker tips: Barclays, British Land, C&W

17th Nov 2009 13:00

The Barclays share price has undergone a correction since Qatar's sovereign wealth fund sold half of the warrants it holds in the UK bank back in mid-October, meaning the shares trade barely above Nomura Securities' estimate of year-end tangible book value per share (TBVPS).The broker has raised its recommendation on the shares to 'buy', with a price target of 425p, saying that normalised earnings expectations also support the share price.Annualising the third quarter profits before impairment charges, and normalising impairments, would imply normalised earnings per share of 55p, which would put the shares on a price/earnings ratio of 5.9.While conceding that the contribution from BarCap, Barclays' investment banking arm, was a bit lower than Nomura had been expecting, 'we view the overall contribution excluding own debt/structured credit of £1,669m as still strong in absolute terms and more than sufficient to justify the valuation,' said Nomura analyst Robert Law, adding that Barclays management expects fourth quarter revenue to exceed the third quarter.The increase in net asset value per share reported by property group British Land was slightly less than the market was expecting, Killik & Co. reckons, while the broker still has concerns about the outlook for the UK commercial property market.'Valuation increases are currently being driven by a lack of transactions and those that are occurring are focussed on prime properties, of which there is limited supply,' claims Jonathan Jackson, head of Equities at Killik. 'In other areas, there continues to be a decline in rental values as tenants face increasing financial difficulty and, given the volume of property on banks' books that will need to be sold at some point, we envisage increasing headwinds in future. All told, the longer-term structural issues facing the sector remain,' Jackson believes.Though the shares offer an attractive yield of 5.2%, the broker predicts the premium of the share price to reported net asset value per share, currently running at around 30%, is unsustainable. The proposed demerger announced Tuesday morning by Cable & Wireless (C&W) is unlikely to unlock value from the telecoms company, according to broker finnCap.The broker thinks that C&W International (C&WI), the legacy of C&W's old colonial telephone business in Panama, the Caribbean, Macau and Monaco & Islands, will remain a viable investment for income investors, as the businesses are expected to continue to pump out cash.In contrast, the UK focused Worldwide business (C&WW) is expected to face a tough challenge from a reinvigorated BT Global division 'and even a new player (KCOM, reselling BT's products and aiming further up towards C&WW's target customer base),' the broker reckons.'If you want the 9.5p dividend (6.9%, top end but within consensus) then take it, but be aware of significant risk to the capital,' finnCap warns.The broker's recommendation for income investors to bank the dividend and the two shares offered, but to ditch the C&WW share at the earliest possible opportunity.