Barclays' City fan club appears to be growing. Notwithstanding the repeated sell advice from Panmure Gordon, both Credit Suisse and Deutsche Bank have today issued upbeat notes on the bank.
Credit Suisse, the bank's house broker, has raised its price target for Barclays from 110p to 170p, with an outperform rating on the shares. It says the bank could receive a capital gain of £4.5bn from the sale of its iShares business. Credit Suisse said:
"The market continues to worry about Barclays capital position. The equity tier 1 ratio at 6.4% is a full 3% below Lloyds Banking Group and Royal Bank of Scotland - adjusted for the asset protection scheme (APS) prepayment fee - and those two banks now have protection against large parts of their portfolios.
"We sympathise with this, and indeed in our recent upgrade piece of 10 March pointed to a capital raise of £8bn being needed to take Barclays ratio to a level that could withstand a relatively severe stress test. This would be about 8.5% ex APS participation or 7.5% pro-forma for an £80bn APS.
"Two things have since come to light. First, and most obvious, the potential sale of iShares which could fetch up to £4.5bn according to the press. This would still leave a £4bn gap to our £8bn number, but Barclays
has also reported a strong start to the year. If its guidance of a 130-150bps impairment charge for the year is correct, this would add £1-5bn to capital relative to our base case and stress test respectively."Second, Pillar 3 disclosures have been published and these give us more comfort on Barclays' capital adequacy. The Pillar 3 disclosures appear to confirm that large parts of the trading book are treated on penal standard rules. This means Barclays might be more shielded from trading book capital changes than generally perceived.
"We therefore believe the "blue-sky" scenario - that Barclays can hold its share count at 11bn versus 7bn in 2007 – while still not our central case scenario, is increasingly feasible. That could deliver net asset value around 274p post a sale of iShares, on our numbers."
Meanwhile Deutsche suggested that Barclays could receive £5bn from any sale of iShares and also believed the bank may well participate in the government's APS. With a buy recommendation and 220p price target, Deutsche said:
"The APS decision is tricky, but the stock is cheap either way. Barclays confirmed it is looking at participating and may be selling iShares. On our numbers, if Barclays sells iShares for £5bn and reinsures £150bn of assets under the APS with no B share issuance, core tier 1 would go to 8.1% placing the share on 0.4x a 299p tangible book value. We think this is probably the approach the bank wants to take."
Barclays is currently 10.6p higher at 134p, making it the second biggest riser in the leading index after hedge fund group Man, up 20.75p to 228.25p following a well received trading update.
Deutsche is less enamoured of Standard Chartered, cutting its recommendation from hold to sell with a 700p price target. In the market Standard has slipped 11p to 881p. Deutsche said:
"We believe Standard Chartered has the best geographic footprint of the UK banks. However, its 42% share price increase since the results leaves the share trading at close to 1.8x tangible book value, a multiple which we regard as too high given the broader economic risks: we calculate Standard's geographies are currently seeing a 17% year on year fall in industrial production, with GDP to contract by 3.3% in 2009 before returning to anaemic growth rate of 1.6% in 2010 on current consensus estimates."
Generally the market has edged back up again, with the FTSE 100 7.79 points higher at 3908.04. UK retail sales disappointed but - in contrast to yesterday - today's government gilts auction was a success. The £1.1bn 2020 gilt was 2.75 times oversubscribed.
The next hurdle to be overcome is US GDP figures due later.
Among the midcaps builders merchant Travis Perkins has fallen 26.5p to 417.5p on talk the company needs a £350m cash call. Analysts at Royal Bank of Scotland said:
"Trading continues to deteriorate and the trough is not yet certain. We still expect an equity issue, which we believe is well anticipated in the share price. Pre and post equity issue, we see Travis Perkins as underrated, but after gaining 50% in the past month, we move back [from buy] to hold with an unchanged 478p target price.
"Travis held out at the 2008 results from an equity issue, but we see no alternative option for the group given that: 1) its existing debt facilities look too attractive to sacrifice; 2) asset disposals at this point would not deliver value for shareholders, in our view; and 3) on our base-case forecasts, net debt to EBITDA will be on the covenant at 3.5x and on EBITA interest cover the group will be below the 3.5x covenant (we forecast 3.4x for 2009).
"Given the need to cover a range of downside trading risks, we believe Travis must deliver a robust balance sheet to see it through what could be very challenging trading in both 2009 and 2010. To insulate the group from further covenant pressure, protect its debt facilities and ensure the business can be managed for the long term, we expect a £350m equity issue in the coming weeks. "
