Broker tips: Betfair, Lloyds

5th Jun 2015 17:31

Shares in Betfair fell 5% on Friday after Numis Securities cut its rating on the stock to 'sell' from 'reduce'.Numis said it normally reserves 'sell' recommendations for companies that have fundamental problems, but Betfair is not one of those."However, we have been meekly increasing our share price target in line with the outperforming share price for some time. But, after further outperformance, we simply cannot make sense of a share price of more than our new target of 2,100p (up from 1,620p), 21% below the current price and, in our recommendation system, a sell."Numis pointed out that since the company creditably rejected a 1,086p per share takeover offer in May 2013, the share price is up 145%.Betfair's share price has outperformed its peers and now stands on a valuation that does not reflect the challenges the business faces, including the impact of new duties, lapping a very successful start to full-year 2015 and the challenge from a very competent set of competitors, said Numis.It added that a key attraction of Betfair has been the sharp improvement in the conversion of reported profit to bottom-line cash flow. "While the cash generation remains appealing there is little scope for a further underlying improvement in our view," said Numis, which forecasts a deterioration in the short-term.HSBC upgraded Lloyds Banking Group to 'buy' from 'hold' and raised the target price to 103p from 87p."Though unchanged, our earnings remain 9-10% higher than consensus reflecting a more positive stance on margin," it said.The sell-down of the government stake has acted as a glass ceiling on share price performance, but will ultimately come to an end with a retail placing in the next 12 months, it added.HSBC noted that Lloyds offered investors a 15% return on tangible equity a level exceeded by only a handful of European banks.Evidence of intensifying competition in the UK mortgage market has raised justifiable concern about the sustainability of returns.However, management has raised margin guidance twice so far this year reflecting their capacity to lower the cost of liabilities whilst the possibility of rising domestic rates raise the prospect of further gains in 2016, said HSBC.HSBC maintains its 2015 earnings per share forecast at 8.5p and beyond that looks for 9p in 2016.