Broker tips: UK banks, Enterprise, Babcock

12th May 2009 13:06

Credit Suisse has upped its price targets on part-nationalised banks Royal Bank of Scotland and Lloyds Banking Group but the increased targets are still below both banks' current share prices.Royal Bank of Scotland has had its target price increased from 25p to 30p, while Lloyds' price target is boosted to 65p from 45p, but both stocks have an 'underperform' rating.Credit Suisse has also cut Barclays from 'outperform' to 'neutral'.The Swiss bank believes new rules on liquidity, along with other regulatory changes, plus lower interest rates will impede the banks' progress back towards profitability.'We think margins are under far more pressure than people realise,' said Jonathan Pierce, Credit Suisse analyst.Pierce estimates that the three UK banks could see £15bn to £20bn wiped from margins as the tougher conditions force them to compete harder for retail deposits.Profits from pub group Enterprise Inns were a tad below Singer Capital Markets' expectations, but this was due to higher costs rather than lower than expected revenues.On the positive side, the debt refinancing side looks to be in better shape, especially following the widely expected dividend cut.'The company has also carried out a desk top revaluation of its estate and has adjusted its valuations down by 3.5% (or £195m). This should reassure those people that think it could be getting close to its valuation covenants,' said Singer analyst John Beaumont.Beaumont is expecting analysts to modestly downgrade their full-year forecasts following Tuesday morning's interim report, but remains a buyer of the stock, with a price target of 213p.Fellow stockbroker KBC Peel Hunt has not revised its profit estimates but it has changed its trading view on the stock, recommending its clients take profits. The shares are well above the broker's price target of 120p.In similar vein, Charles Stanley has removed its 'trading buy' rating for the stock and now rates it no more than a 'hold'.Broker KBC Peel Hunt believes the recent lack of enthusiasm for Babcock International's shares is down to exaggerated fears about public sector spending.The broker believes the recent share price underperformance is unwarranted and has upgraded the stock to 'buy' from 'hold', with a price target of 550p.Singer Capital Markets, meanwhile, has a price target of 570p and is retaining its 'buy' recommendation after Babcock's profits came in 2% of the broker's forecasts.