Broker tips: RBS, Capita, Logica

23rd Feb 2012 11:22

Nomura has maintained its reduce rating and 26p target price for part-nationalised lender Royal Bank of Scotland (RBS), saying that while the group's full-year results were broadly in line with expectations, consensus downgrades are now in the pipeline."Overall, RBS results were similar to expectations. The overall tone is relatively cautious in terms of guidance for the 2012 outlook and the deferral/reduction of longer-term profitability targets. While neither of these is surprising, we view this as negative for the UK banks and consensus expectations," the broker said.Consensus estimates are looking for a pre-tax profit of £3bn in 2012 and given that Retail and Commercial (R&C) banking is expected to be flat, the broker thinks that this must imply cost reductions given the revenue headwinds. "Assuming Core revenues remain flat in 2012, current consensus implies that non-core losses will fall by £1.1bn in 2012, which we see as demanding, and hence see downside to consensus estimates."Prime Markets recommends to buy outsourcing firm Capita saying that it expects the stock to performing strong in the coming weeks."The price action spiked sharply higher yesterday, breaking back through the benchmark 200-day moving average at 686p, and while the shares close end of day above this level, our next target is a retest of the late October 745p high within a two-four week timeframe," said the Head of Dealing Richard Curr.Shares dropped in October after the firm said it was seeing an adverse effect on a number of its trading activities due to pressure on spending. "Of particular note is the upbeat outlook statement from CEO Paul Pindar, which in our view signals that the woes of last October are consigned to history. Based on this, we believe the shares will naturally return to pre October tipping point levels," Curr said.UBS has hiked up its target price for business and technology service company Logica by 41 percent from 64p to 90p but maintained its neutral rating on the stock, saying that 'structural issues remain'."Revenue growth of 2.3% in Q4 was ahead-of-plan and Logica exited 2011 with a good backlog in Outsourcing and stronger-than-expected bookings in Consulting & Systems Integration," the broker said.However, the broker says that "maintaining growth in an anaemic macro environment while managing an ageing onshore pyramid with seemingly upward-only wage pressures" represent a major challenge. Some 94% of the group's sales come from Europe.BC