Broker tips: Tate&Lyle, RBS, 888 Holdings

16th Feb 2015 15:21

Tate & Lyle is looking sweet, analysts at Cannacord Genuity said in a research note e-mailed to clients on Monday.The company is expected to benefit from multiple tailwinds. Together with a now substantially greater possibility of a take-over attempt - given its current valuation - by US rival Bunge led analysts Alicia Forry and Eddy Hargreaves to up their recommendation on the shares to a 'buy' from a 'sell'.In parallel, the price target for the stock was hiked to 650p from 530p.Among the potential positive catalysts for the stock cited were: the fact that a fourth profit warning in the near-term, following three over the last 12 months, appears low and the maker of sweeteners faces easy comparables in the next four quarters.A strengthening US dollar and a boost to co-product income from rising corn prices should also prove favourable.The low valuation of the shares, the stronger dollar and low interest rates, may all contribute to potential interest in a take-over bid from Bunge. At the moment Tate's dividend yield - the company's dividend pay-out as a proportion of its stock price - stands at 5%.Forry and Hargreaves estimated that Bunge might be willing to scoop up Tate & Lyle at a 40% premium. The purchase would give the American firm greater exposure to value-added ingredients and expand its presence in corn milling. That has long been an area of interest for Bunge.If there is a single FTSE 100-listed domestic bank that stands to gain when Bank Rate rises that is Royal Bank of Scotland.Unfortunately, Bank Rate is going nowhere any time soon.Current market expectations - as implied by the current yield curve for Gilts - are for Bank Rate to stay on ice until the third quarter of 2016, Investec analyst Ian Gordon pointed out on Monday morning.As well, existing positive spreads on assets are coming under pressure, while improvements in the spreads on the bank's liabilities will be much more limited.That means that any expansion in the lender's net interest margin (NIM) - the difference between what it charges for the funds that it lends out and what it must pay for its own access to capital - may be muted, Gordon explained.The slope of a bond yield curve [Gilts in this case] typically increases most quickly as the economy accelerates and a central bank embarks on a new cycle of interest rate increases.RBS also faces the fresh calls, last week, from members of the Treasury Select Committee for the Financial Conduct Authority (FCA) to investigate allegations of low IRHP redress assessments by RBS relative to other banks' standards.On the positive side of things, once completed - towards the end of 2015 - the sale of Citizens Financial Group in the US will "fix" the majority state-owned lender's capital position.The analyst consensus is also more optimistic than Gordon regarding RBS' earnings per share performance this year. The analyst has pencilled in 2015 EPS of 0.1p versus the Bloomberg estimate of 4.9p.Even so, Investec's Ian Gordon decided to downgrade his recommendation on the shares to 'sell' from 'hold' even while reiterating his price target on the stock at 380p.Shares in on-line gambling firm 888 Holdings are headed for turbulent waters after the company terminated talks with William Hill regarding a possible take-over.After the introduction of the Point of Consumption Tax in the UK the firm will face increased competition, which is expected by analysts at Panmure Gordon to result in a significant slowdown in revenue growth.The broker adds that the starting-off point for the stock is another negative to take into account. The valuation remains aggressive given the high proportion of unregulated revenue (approximately 40%).Hence Panmure's decision to retain its 'sell' recommendation on the shares and 96p price target.The price tag mooted for the transaction - an offer price of 203p per share (including a 3p dividend) was suggested - would have valued 888's equity at £732m, representing a take-out multiple of 25.5 times these analysts' 2015 earnings per share estimate or at 16.8 times the operating profits (on an EBITDA basis) forecast for this year.