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Broker spotlight - RBS, Tesco, BG group and Boohoo

Last updated: 12:54 12 Jun 2014 BST, First published: 11:54 12 Jun 2014 BST

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It's been a little while since we've had a downbeat note from City firm Investec on RBS (LON:RBS) - well four months anyway - but today brought another one.

It has cut its rating on the bank's shares to 'sell' from 'hold' after the recent spike in the shares - a rise -  which the broker says, represents a "triumph of hope" over reality.

Following the positive surprise of the first quarter numbers in May, Ian Gordon says he anticipates RBS will deliver a "solidly loss making performance" through the second quarter through to the fourth.

The broker believes that the expected publication of divisional restatements in July,  coupled with, its forecasted losses, will help to "drag the RBS debate back to fundamentals and hard numbers  rather than a spike in the share price on the back of a somewhat intangible hope of a “quick fix”".

Gordon, interestingly notes, how the broker was mildly incredulous at suggestions in the  media that an early sale of £5bn of the UK government's 80% stake, might prove a good thing for the shares.

For he believes a key factor supporting the group's curious premium rating is the presumption that the Government is effectively “locked in” for the long term.

Investec has a target price of 325p (current price: 338.8p).

Tesco (LON:TSCO) is not a bank - it's a supermarket, though it has just launched a current account as one of its many offerings.

Heavyweight broker Goldman ignores that issue and repeats a 'sell' rating on the shares, saying the trading environment appears to be weakening, with the group's LFL sales growth (-4%) in the UK in the first quarter weaker than it had expected.

It has reduced its sales forecasts by an average of 5% on average for the next three years, while  EBIT and EPS estimates fall by around 3% and around 4% respectively.

The same broker takes a look at South African platinum miner Lonmin (LON:LMI) and says it sees no danger to the firm's balance sheet in the light of the light of the mining strike, which is now in its 21st week. It comes after reports yesterday the firm may need to raise equity.

"We see no risk to the balance sheet given that the company drew down allits debt facilities – US$589mn at the beginning of the strike and had $660mn of cash on hand as of 1H14. 

"Based on our estimates we believethe company can sustain 12-18 months of strikes from here without the balance sheet coming under duress."

Goldman, however, is not positive on the shares, saying a conviction call in these unpredicatble times was difficult. It rates the stock 'neutral'.

Japanese broker Nomura has lowered its rating on gas major BG Group (LON:BG.) to 'neutral' from 'buy' for a number of reasons, including those associated with finding a new CEO following Chris Finlayson's departure in April, when the non-exec chairman Andrew Gould took the reins

Although Gould has said the board is willing to take key decisions on portfolio management issues if  they arise, we argue a more proactive approach is unlikely until a replacement CEO is in place," says Nomura, which has a price target of 1,350p.

The downgrade also reflects the risk that consensus esimates for EPS in 2015 are roughly 15% too optimistic.

Manchester based online fashion firm Boohoo (LON:BOO) and ASOS rival posted a 63% rise in revenues for last year and tripled profits to £10.7mln.

It designs sources and sells its own brand of clothing online.

N+1 Singer is bullish today on the stock's potential: "With a UK sales base of just c£70m and overseas sales c35% of the mix this is a brand with considerable growth potential. Boohoo’s infrastructure investment plans will support c£0.8bn sales from a single site. This low price, fast fashion, formula is definitely one to watch."

Back to retail and JP Morgan Cazenove started covering Ocado (LON:OCDO) with an 'overweight' rating and 500p price target. 

It reckons it is the best way an imnvestor can play the shift from property to IT as the key differentiating investment in food retailing. 

"Ocado’s economic model continues to improve, increasingly making the company a disrupter in the UK food retail market. The modular model (expected to be announced soon) 

should improve asset turns further and make the model easier to be exported, potentially  triggering international deals."

Hummingbird Resources (LON:HUM) unveiled today the “transformational” acquisition of gold assets in Mali that could catapult the group into production by the end of next year.

It is buying the 1.8mln-ounce Yanfolila project from Gold Fields in an all-paper deal that values the property at £20mln, or US$11 an ounce.

Charlie Long, of broker Sanlam, said the acqusition was "excellent news".

Investec added: "This is an encouraging development for the company and will hopefully provide a low cost rapid route for the company to evolve from explorer to producer. 

"We note however, that the announcement does not provide details on the production profile of Yanfolila other than year-one, nor is there an indication of how grades evolve. 

"We wait to see further news flow on the project as management get to grips with it. In time this will hopefully better position the company to develop other assets in its portfolio."

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