Broker tips: UK banks, Experian

3rd Feb 2011 14:08

According to Credit Suisse, there is "little to excite" investors in UK banking: Barclays remains the broker's top pick in the sector, while target prices are reduced for Lloyds, RBS, HSBC and Standard Chartered.In regards to the sector as a whole, "our advice is unchanged", says analyst John Pierce. "Liquidity and capital requirements will, in turn, lead to another year of sluggish loan growth across the sector in our view ... Combined with further shrinkage in the balance sheet of the building societies and the international banks ... we expect little if any credit generation in the UK economy in 2011," Pierce said.Credit Suisse highlights Barclays as its favoured lender as it offers a hedge against rising interest rates. The bank is given an 'outperform' rating and the target price of 355p remains unchanged.The broker says that for Lloyds, the downside is limited, but it thinks that a "realistic assessment of earnings power (specifically revenues) and capital distribution (Basel 3 and sub-debt dividend stoppers) is needed before the shares can perform." While Lloyds is also given an 'outperform' rating, the target price is lowered from 79p to 76p.RBS has underperformed the European banks sector by 10% since October but the broker notes that it does not see this as a buying opportunity. A 'neutral' stance is given, and the target price is cut to 46p, from 52p.While 'outperform' ratings are given to both Standard Chartered and HSBC, Credit Suisse has a preference for the latter as it "offers a simple combination of balance sheet strength and positive exposure to rising rates." Standard Chartered's target price is cut from 2,200p to 1,870p, and HSBC's is reduced to 775p, from 810p.RBS expects credit-checker Experian to benefit from the global macroeconomic recovery and anticipates organic revenue growth accelerating over the next two years."Experian derives 20% of group revenues from emerging markets such as Brazil, India and Russia. We believe the recent decision by the Brazilian Senate to permit the use of positive credit data enhances Experian's medium-term growth prospects in that region," the broker says.Despite the US economic recovery leading to a positive earnings momentum, the broker notes that the group trades at an 18% discount to its historical peak price-earnings ratio.RBS expects revenue growth to accelerate from the 7% reported in the first half of 2011 to 8% in 2012, and 9% in 2013.The broker initiates coverage with a 'buy' and target price of 900p.