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Broker Round-up: Long road ahead for RBS’s McEwan

October 01 2013, 11:42am

Ross McEwan begins one of the toughest jobs in the City today as he takes over as chief executive of Royal Bank of Scotland (LON:RBS).

The New Zealander, who replaces the departing Stephen Hester, is charged with reprivatising the bank, which was bailed out by the government at the height of the financial crisis.

Shore Capital today outlined four tasks McEwan, along with new finance director Nathan Bostock, will be charged with.

First off will be to deal with the conclusions of the government’s ‘good bank/bad bank’ review – but Shore’s Gary Greenwood does not think this will have any impact on minority shareholders.

His second job will be to turn around the sinking ship that is Ulster Bank, as well as the shrinking markets business – plans are already in place to cut costs further to improve returns.

Finally, he needs to renegotiate the terms of the Dividend Access Share, which will enable divis to be paid in future.

“We remain bullish on the prospects for RBS shares over the next year, believing that the investment story is perhaps some 12-18 months behind that of Lloyds Banking Group (LLOY, Buy at 74p), for whom its shares have almost doubled over the past year,” said Shore’s Greenwood.

“Although we think RBS is a more complicated investment story than Lloyds, and we would not suggest the shares should yet trade on the 1.3x TNAV multiple that Lloyds’ currently enjoys, we do think c1x TNAV is achievable (backed up by a sum-of-the-parts analysis), implying a ‘fair value’ of 445p,” said Greenwood, whose target price represents 24% upside to the current share price.

Ben van Beurden will also have plenty on his plate when he takes over as chief executive of Shell (LON:RDSB) at the end of the year.

And there is nervousness over the company’s direction especially given that not much is known about the new boss, who is currently head of downstream operations.

“A change over at the top often engenders uncertainty and this is likely compounded by the strategic re-evaluation and investors' lack of knowledge of the new man,” was UBS’s verdict today.

The company has been evaluating its portfolio of unconventional assets and is set to exit the Eagle For shale play in Texas as it does not meet its requirements in terms of size and profitability, according to a Wall Street Journal report.

African Minerals (LON:AMI) share suffered on Tuesday after Credit Suisse downgraded the miner to ‘neutral’ from ‘outperform’.

Last week’s strategic investment from China’s Tianjin Materials, which will see the iron trader pay $600mln for an interest in its flagship project in Sierra Leone and a 10% equity stake in AMI, put a rocket under the share price.

But Credit Suisse is trimming its target price to 280p from 350p against the current price of 228p.

DIY retailer Kingfisher (LON:KGF) will reach 440p each next year if Jefferies’ analysts’ best guesses are anything to go by.

They have lifted their target price by 40p to 440p, keeping their ‘buy’ recommendation, on the basis that Help to Buy will encourage consumers to shop for DIY products at B&Q.

Bwin.party (LON:BPTY) , St James’s Place (LON:STJ), and Thomas Cook (LON:TCG) all made it onto Panmure Gordon’s list of top picks for the fourth quarter.

Despite a warning about trading last week, the broker thinks the latter could pay a dividend by 2015.

Elsewhere, Stagecoach (LON:SGC) shares revved up on Tuesday after an upgrade to ‘neutral’ from HSBC. The broker is no longer urging its clients to drive the stock lower.

Now is a good time to buy Rolls-Royce (LON:RR.) shares, according to Bank of America Merrill Lynch.

The aircraft engine maker’s shares have “significantly lagged” the sector, the broker points out, which could reflect the market’s appetite for more early cycle names. But it thinks things are set to turn around.

“The management team is focused on improving margins and cash generation to world class standards as they benefit from significant volume growth, especially in civil aerospace. This should lead to further re-rating in the share price,” said the heavyweight bank.


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