Broker tips: HSBC, M&S, Vedanta

27th Feb 2012 11:31

Nomura has maintained its buy recommendation and 725p target price on global banking giant HSBC, saying that this morning's results are 'supportive of our investment case'.The broker says that full-year figures were broadly in line with its expectations, with pre-tax profit of $21.9bn just short of its $22.4bn forecast. "Although there is downgrade risk in the sector generally, we see less risk at HSBC and STAN [Standard Chartered] and reiterate our buy rating on the back of these results."Furthermore, "the outlook statement is more optimistic than usual for HSBC and indicates an expectation of improving the RoE in 2012 and of continued strong growth in Asia, Latin America and the Middle East, although at a slower pace than last year, with a soft landing in China."UBS has upgraded its rating on high street giant Marks & Spencer and taken a more positive stance on the European general retail sector.The broker says that sceptics have had the upper hand since late 2010 with the stock being lacklustre since the news of the three-year plan. However, it believes that if positive signs on returns are seen the in the results in May, the stock will react very positively.Today, the broker has upped its full-year pre-tax profit forecast by 3% to £690m due to lower assumed operating expenditures. The target price is lifted from 325p to 410p.In a separate note, UBS says that the clothing retailers are now seeing lower input costs, which should feed into higher gross margins, after passing through input cost inflation "to a larger degree than expected".Credit Suisse has maintained its neutral rating on Vedanta Resources, saying that the group's proposed restructuring is value accretive but highlight contentious on the valuation of Vedanta Aluminium (VAL)."The mismatch of subsidiary debt and cash flows and lack of full cash fungibility around the group has put a strain on the business model. The benefit for the entire group is the simplified structure and removal of cross holdings," Credit Suisse said.While the broker believes that the merger and transfer of the Cairn holding would be relatively value neutral to Vedanta, it says that the transfer of VAL adds around 230p-a-share alone. However it says that this would be the "main sticking point on the transaction". The company valued the equity of VAL at $473m, which Credit Suisse says implies an enterprise value (EV) of over $6bn. However, with operations still dependent on whether or not the division can obtain a bauxite mining licence, there still "remains a big if". The broker thinks it is highly unlikely that VAL could be sold to a trade buyer for an EV of over $6bn.BC