Broker tips: Lloyds, Admiral, National Express

29th Jun 2009 12:53

US bank Goldman Sachs has added part-nationalised British bank Lloyds Banking Group to its conviction buy list, claiming Lloyds shares represent the cheapest option among the major large-cap European banks.Goldman Sachs has upgraded Lloyds from "neutral" to "buy", going against the trend of most investment analysts. "Lloyds is one of the worst performing banks year to date, and has three times as many sell ratings as buy ratings," Goldman Sachs (GS) notes. "This suggests to us that the market expects Lloyds to be a structural loser from the changes in the UK banking market."GS takes a contrary view, expecting Lloyds to be a "key beneficiary" of the concentration of market share in the UK banking market, as it uses its 30% market share to boost efficiency and exercise pricing power. "Lloyds has historically delivered among the highest returns on equity and asset margins of all the large European banks and we believe it should be able to do so again," GS believes.Goldman Sachs also resumed its coverage of Barclays with a "neutral" rating.Car insurer Admiral has moved back towards the bottom of the trading range it has occupied since August of last year, prompting Credit Suisse to recommend dipping back into the shares.The Swiss bank believes Admiral's shares may be supported at around its current level by its dividend; the shares are currently yielding around 5.92%."We expect markets to remain range bound in the near term and Admiral offers a defensive alternative within the insurance sector with a track-record of delivery and cash growth," Credit Suisse (CS) suggests. The bank has upgraded the stock from "neutral" to "outperform" but has left its price target unchanged at 1097p.The bid by FirstGroup for rival train and bus operator National Express is opportunistic, according to Panmure Gordon, given the latter's problems on its East coast franchise which are pushing the company into the red."With the exception of rail, National Express's assets are quite attractive, although there may be some competition issues in North America and possibly the UK," reckons Panmure Gordon analyst Gert Zonneveld.Panmure believes that if National Express survives as an independent company it will need to raise a substantial chunk of new equity. "Given the current market cap of £417m, a 1.6 for 1 rights issue at a discount of 40% would raise around £400m For now we see no reason to change our Hold recommendation," the broker concludes.