Broker tips: RBS, Prudential, Cadbury

9th Nov 2009 13:18

Insurance giant Prudential was one of the major risers on Monday morning after a price target upgrade from Dutch broking group ING.ING has upped its target price for the Pru from 392p to 584p, but maintains its 'hold' rating for the shares.The broker is not sold on all insurers, however. 'The recent strong outperformance of insurers in our universe seems to us to be a relief rally that they have not suffered in the same way as the banks. This reaction is sensible, if superficial, in our view - and unlikely to be sustained,' ING says.The saving grace of Prudential is its exposure to emerging markets, though ING believes this is reflected in the current share price. 'Some of the world's developing markets are doing exactly what it says on the tin and growing. A number of names in our universe are building businesses in these markets, and we recommend focusing buying on these stocks. Companies that are pursuing growth in emerging markets are the buy-rated Generali, Allianz, Fortis and Aviva,' ING said.Nomura Securities continues to take a cautious stance on rescue case Royal Bank of Scotland and recommends clients should reduce exposure to the stock.'We do not believe the group has surplus capital, as the apparently significant capital strengthening will be absorbed by further losses and involuntary RWA [risk weighted assets] growth. Meanwhile, we would argue the Q3 [third quarter] figures were equivalent to normalised PBT [profit before tax] of some £7bn, or EPS [earnings per share] of 3.7p, with GBM [Global Banking and Markets], the main profit driver, being below our expectations,' said Nomura analyst Robert Law.The £7bn profit before tax figure is 'well below the £9bn figure we have been using for normalised PBT,' Law notes.The forced sales ordered by the European Union will reduce profitability further. The businesses on the chopping block generate around £1.2bn of profit before tax each year, equivalent to earnings per share of 0.8p.'Until we see potential for EPS justifying the share price we remain negative and prefer HSBC and Barclays,' the broker concludes.Nomura has a price target of 31p for RBS.Cadbury shareholders should reduce their holdings if they have not already done so after US processed foods group Kraft Foods elected to leave its bid terms for the Dairy Milk maker unchanged.That's the advice of Charles Stanley, which has a 'reduce' recommendation on the shares. The broker believes an offer worth 850p a share would have been sufficient to win over the majority of Cadbury shareholders after the perceived worth of the venerable UK chocolate maker was boosted by a recent upbeat trading statement.Kraft's terms value each Cadbury share at about 717p.