Broker tips: Next, Cape, UK banks

16th Sep 2009 12:46

KBC Peel Hunt is contemplating upgrading its target price, earnings forecasts and rating for Next after the fashion retailer's impressive interim results on Wednesday morning.The broker expects consensus forecasts for full year pre-tax profit are likely to rise as a result of the half-year update, and may even move above last year's pre-tax profit of £429m. Profit before tax (PBT) at the half year stage rose by 6.9% to £185.5m, ahead of KBC's expectations and towards the upper end of market expectations.Broker Nomura Securities has warned that shareholders in UK banks should be wary of the potential for a reversal in the sector and advises banking profits.'The domestic UK banks have rebounded to valuations of 1.4x book value, with the Far Eastern banks on 2.2x. Consequently, we advocate booking some profits and downgraded Lloyds, Barclays and Standard Chartered to Neutral from Buy in our sector review this week,' the broker's analyst Robert Law said.Nomura reckons HSBC is the best stock in the sector. It rates HSBC a 'buy' with a price target of 750p. Conversely, Nomura thinks RBS holders should reduce their Royal Bank of Scotland holdings.The broker believes the ability of UK banks to achieve acceptable levels of profitability will be constrained by regulatory restrictions, as well as the requirement to maintain higher levels of equity capital and adopt more conservative funding structures.Increasing confidence on 2010 forecasts and the prospects in Australia for support services provider Cape have prompted the group's house broker Numis to lift its target price for the stock.Numis is raising its earnings per share (EPS) estimates for the current year by 3% and upping its EPS forecast for 2010 by 9%.'The group is comfortable with our projections of £40m p.a. cash pay down in 12/09 and 12/10, resulting in a 12/10 net debt/ebitda (earnings before interest, tax, depreciation and amortisation) of 0.9x,' Numis said.The broker has a target price of 292p but speculates that a 'combination of re-rating and firming forecasts could take the shares to 300-400p over 12 months,' especially if Cape resumes paying dividends, which Numis feels it will be in a position to do in 2010.Numis rates the stock a 'buy', but advises that risks to its rating include 'reputational (e.g. safety record), contract start-up delays/phasing, margin pressure and the timing of the repositioning of the Australian portfolio.'Evolution Securities has also raised its 2009 forecasts, and is now predicting pre-tax profit of £56.1m, up from its previous forecast of £48.9m.The broker thinks the shares are worth buying and has a price target of 250p.