Broker tips: Lloyds Banking, IMPs, Reckitt

2nd Nov 2010 13:27

Investment house Killik has reiterated its positive recommendation on Lloyds Banking Group after the part nationalised lender's interim management statement indicated things are ticking along much as expected. "The Lloyds investment case is a simple one of recovery from the impact of the financial crisis and the merger with HBOS," opined Jonathan Jackson, Killik's head of Equities."At the current rating of 6.5x 2012 earnings, with the potential for upside surprises, Lloyds looks very attractively valued. In addition we expected a return to dividends by 2012, with a 4% yield. We retain our Buy recommendation," Jackson said.Full year results from tobacco products company Imperial Tobacco were in line with expectations, though earnings per share were a touch lower than broker Daniel Stewart had been expecting.Adjusted earnings per share (EPS) was 178.8p, up 11% on a year earlier, but below Daniel Stewart's forecast of 182.8p, due to a higher tax charge.The broker remains a fan of the stock which, it notes, trades on a lower price/earnings (p/e) ratio than its perennial rival British American Tobacco, though BATs offers a better dividend yield than IMPs."As volumes recover in Eastern Europe and the group continues to drive efficiency gains, eps growth of around 10% looks assured over the next couple of years and, with good cash conversion allowing strong dividend growth, the stock looks cheap," analyst Simon Willis concluded.Strong pharma growth and impressive margins has seen Panmure Gordon (PG) retain its 'buy' recommendation for Reckitt Benckiser, the provider of consumer healthcare and household products.Despite the three months to September being seen by many as Reckitt's most challenging quarter, the results impressed the broker.Along with its strong 33% growth in prescription pharmaceutical sales, base earnings before interest, tax, and amortization margins rose by 110 basis points (one basis point = one hundredth of a percent), well ahead of PG's 20bp forecast."Group margins rose by 220bp to 26.7%, again well ahead of our 25.1% forecast and consensus of 25.6%," the broker said.Additionally, earnings per share growth was much stronger than the broker expected, rising by 18% to 58.4p, versus PG's forecast of 54.8p.The broker has increased its current year earnings per share growth from 215.3p to 229.2p. "We reiterate our 'buy' recommendation and 3,800p price target."