Broker tips: Lloyds, GKN, RSA

24th Feb 2012 10:51

Nomura has maintained its reduce rating and 35p target price for Lloyds Banking Group following its full-year results this morning, saying that the bank is 'putting balance sheet strength before earnings'."Given the complexities at Lloyds, our initial post-results reaction is subject to even more uncertainties than usual. Nevertheless, the main features seem similar to those at RBS. The group has strengthened the balance sheet at the expense of profitability and is deferring the achievement of its profitability targets," Nomura said.The broker says that the group is likely to be in an extended phase of deleveraging, implying weak revenues and capital build, "which looks fundamentally unattractive."UBS has raised its target price for automotive and aerospace engineer GKN to reflect an improvement in the outlook and the upside risk to its growth forecasts.The broker says that 2011 was a "turbulent year" due to the events in Japan, Gallatin and Thailand. "2012 passing without major incident would be a £50m profit boost, which in combination with pro-forma acquisition effects of £30m does not make the remaining £20m bridge in our numbers too heroic providing GKN sees some volume growth." UBS says that an improving economic outlook is bringing upside risk too.The target price is lifted from 225p to 250p. UBS maintains its buy rating on the stock, saying that the transition to a new Chief Executive Officer (Nigel Stein) and the potential for a review of margin targets and/or additional returns also provides a leg to the investment case.Nomura has downgraded insurance group RSA from buy to neutral given the lack of a catalyst in yesterday's full-year results."Our original investment thesis was predicated on RSA being a quality defensive stock. This still holds true, but we persisted with our buy in spite of the rally as we looked for the results to be a catalyst. Hence, given a lack of a catalyst until perhaps H1/FY results, we believe the stock will find it difficult to break out of its 105-115p trading range."Nomura has cut its earnings estimates for 2012 and 2013 by around 20% and the target price is slashed from 148p to 120p. BC