Broker tips: RBS, ARM, Drax

25th Jul 2012 11:41

Nomura has maintained its 'reduce' rating for UK lender Royal Bank of Scotland (RBS) saying that uncertainties surrounding the business still remain."We remain negative on RBS (and Lloyds) given the uncertainties of restructuring in a deleveraging environment, the need to build capital to meet new regulation and turnaround the economic losses in capital markets," the broker said on Wednesday.The broker highlighted that core businesses continued to shrink in the first quarter, "a trend we see likely to continue as long as the private sector keeps deleveraging.Peel Hunt has maintained its 'buy' rating and 650p target price for chip designer ARM Holdings on the back of a 'very strong' second quarter, though the broker did note caution going into the second half.Analyst Paul Morland noted: "Underlying forecasts remain unchanged despite the beat because ARM cautiously expects a generally weaker outlook for global chip shipments to mean that the beat in Q2 could be lost in Q4."Investec has reduced its target price for coal-fired power station group Drax from 498p to 425p and reiterated its 'hold' rating following the Department of Energy and Climate Change's (DECC's) final biomass banding."Drax had been planning to convert the station to 50-60% co-firing, but we believe that the lowered level of subsidy (1.0 ROC/MWh had been hoped for, rather than 0.6-0.9 ROC/MWh) challenged the viability," said analyst Angelos Anastasiou."We believe that full conversion has to be more difficult to achieve, and full conversion of all six units will, by default, require even greater quantities of biomass," Anastasiou said.BC