Broker tips: RBS, Bovis Homes, British Land

10th May 2016 13:11

(ShareCast News) - Royal Bank of Scotland was still on track to generate considerable surplus capital in the medium-term, but the exact amount and timing of any distribution were uncertain, HSBC said.Possible delays to the separation of Williams&Glyn meant the lender might breach its State Aid Commitment which could trigger additional remedies, analysts Peter Toeman and Robin Down said in a research report sent to clients.For the Prudential Regulatory Authority to approve a re-start of dividend payments RBS first needed to settle its litigation in the US linked to residential mortgage backed securities, to assure its exit from Williams&Glyn and pass the Bank of England's 'stress test' for 2016.RBS also needed to maintain a minimum buffer of reserves equal to 13.0% of its common equity Tier 1 capital.Unfortunately alongside its first quarter numbers management said difficulties in creating a cloned banking platform might push the separation of Williams&Glyn beyond the end-2017 deadline set by the regulator."In any event the financial cost of separation is likely to be significantly greater than the original estimate of GBP1.1bn (treated as a restructuring charge)," they said.Combined with disposals/run-off of £47bn in risk weighted assets now in the pipeline and an estimated cost of additional litigation and regulatory fines of $8bn, CET1 would be in excess of 18% by the end of 2018, equating to surplus capital of £11bn over its 13.0% CET1 threshold, the broker estimated."However at this stage the exact of quantum of surplus capital, and timing of distribution, (most likely through repurchase of part of the Government's 73% interest) remains highly uncertain."Toeman and Down reiterated their 'hold' recommendation but lowered their target price from 260p to 240p. Canaccord Genuity reiterated a 'buy' rating and target price of 1,150p for Bovis Homes on Tuesday after the company released a "reassuring" trading update.Bovis said it had experienced "no discernible impact" of Brexit worries hitting housing demand and that after an initial slowdown its sales rate has picked back up to where it was a year ago.The sales rate for the year to date has reached 0.65 reservations per site per week, having been down at 0.6 earlier in the year.The FTSE 250 company said market conditions remain positive with strong demand from home buyers who are benefitting from good access to mortgage finance."We think consensus forecasts are unlikely to change on the back of this update but the market should be reassured on two accounts: the improving sales rate and some early, tentatively positive comments for the longer-term outlook for margins," said Canaccord analysts Aynsley Lammin and Matthew Walker."Shares reside on a 2016 premium to net asset value (P/NAV) multiple of around 1.1 times, making it the lowest rated stock in the sector with the sector average P/NAV multiple at 1.95 times. Shares offer a dividend yield of around 5%." Some of the recent negative trends at British Land would revert in the second half of the year and the risk of Brexit was already priced into its stock, Citi said.Analyst Aaron Guy stuck by his 'buy' recommendation on the shares on Tuesday, heading into the London-based property investment company's fiscal-year results.Recent rent and yield moderation would "positively accelerate" in the backhalf of the year.Furthermore, the shares were already trading at a 25% discount to their net asset value and full-year NAV was set to grow by 17% over the full-year, alongside an expansion of 8% in earnings per share and dividends, he estimated.Guy also expected the full-year results to 31 March 2016 to be positive despite slowing letting and investment market demand year-to-date in 2016 on the back of uncertainty relating to the Brexit referendum.