Broker tips: Lloyds Banking, AB Foods, Bunzl

28th Feb 2011 15:28

Japanese broker Nomura is still bullish on Lloyds Banking Group which tomorrow welcomes on board new chief executive António Horta-Osório. Last week's full-year profit was in line with the analysts' expectations, with lower revenues and slightly higher costs offset by a much lower impairment charge in Wholesale. A surprisingly cautious outlook on further margin progression, costs and impairments in 2011 could keep a lid on things until a strategy review in June, but Nomura believes the shares, which trade at a 5% premium to tangible book value (TBV) and 7x its 2013 normalised price earnings, are "attractive relative to the sector". It keeps a 'buy' stance and 80p target price.Results for 2010 from Bunzl were better than Panmure Gordon had been expecting and the broker thinks the plastic disposables specialist will enjoy another good year this time round.Profits before tax of £276.2m were comfortably ahead of Panmure Gordon's projection of £268.8m, largely because the broker had been more pessimistic "by some margin" about trading in the UK and Ireland.The broker is currently reviewing its profit forecasts in light of its misreading of the UK & Irish market, and expects to upgrade its estimates. "Given the greater non-food bias in this area [the UK & Ireland], this is a good result, and reinforces what Bunzl is all about: attention to detail," the broker said.Meanwhile, "North American operations continue to drive the group forward in profit terms."However, the economic outlook remains uncertain but with piles of cash in its war chest Bunzl can go out and buy growth through bolt-on acquisitions. The management's successful track record with past acquisitions suggests shareholders would welcome this use of cash.While Associated British Foods (AB Foods) seems on track for 2011, RBS remains cautious as Primark's sales have clearly slowed.. The Primark owner's first half trading update indicates its overall performance has been 'in line' with operating profit ahead of last year, and financing costs on target. However, the broker expects the key feature the market will focus on will be the slowdown in Primark's sales. For the first 16 weeks of the current financial year, the division achieved a sales growth of 12% and a like-for-like (LfL) growth of 4%, but AB Foods now indicates that for the 24-week period, sales will be 11% ahead overall and just 3% higher in LfL sales, suggesting a slowdown in the past two months. Though RBS expects this to be offset by a better Sugar performance and pension financing, it sees this mix as negative from a valuation perspective. The broker retains its 'hold' and target price of 1,030p.