Broker tips: RBS, Glaxo, Tesco

2nd Nov 2009 12:56

Royal Bank Of Scotland (RBS) shares were out of favour on Monday morning after the part-nationalised bank issued a statement about the status of its negotiations about participation in the government asset protection scheme (APS).Broker Charles Stanley said 'the big news in this statement is that RBS will be required to make divestments "not initially contemplated".'Charles Stanley had been expecting RBS would be forced to reduce its market share in the small business area, 'possibly dispose of its RBS branded branches in England and sell off its insurance brands.' Monday's announcement suggests that the sell-off may be more extensive than that.'There is also speculation as to whether the fees for the APS and the amount of the assets to be insured will be reduced but that the first loss borne by RBS will be increased,' Charles Stanley analyst Nic Clarke notes.Clarke thinks the shares will remain under selling pressure until the bank makes a fuller announcement later this week. The broker's recommendation on the shares remains 'hold'. Panmure Gordon has reiterated its 'buy' recommendation on GlaxoSmithKline in the wake of the release of positive data for Lupus drug candidate Benlysta in a phase III clinical trial known as BLISS-76.Panmure Gordon believes the Glaxo 'investment thesis moves from a recovery stock to growth,' and, as such, 'pipeline progress and associated upgrades is an important component of our thesis on the stock,' the broker said, adding that it expects the Benlysta update to trigger earnings upgrades.The broker has a price target of 1400p for the stock.Supermarket giant Tesco has ruled itself out of the running for taking over parts of state-owned lender Northern Rock but is now being put in the frame by ING to buy Dutch supermarket outfit Ahold.The Dutch broking house believes Ahold is seen as being undervalued, and tips Tesco as the company best placed to finance a takeover and realise synergies from a merger. ING reckons the synergies could exceed £493m.'At a potential €12.8 takeover price, Tesco's 2011 profit before tax and earnings per share could rise by more than 31% and 14% [respectively],' ING postulates.While acknowledging that Tesco's assault on the US through its Fresh & Easy venture makes long term strategic sense, Ahold represents 'a one-off opportunity to acquire an undervalued asset at a low point in the US consumer cycle.'Broker Oriel Securities has also issued a bullish note on Tesco, raising its recommendation from 'hold' to 'buy'.