Broker tips: RBS, Royal Dutch Shell, Wetherspoon

1st Nov 2013 11:55

Investec has recommended a 'sell' rating for Royal Bank of Scotland (RBS) after reporting a third quarter loss. "Another results day, another grim wake-up call," Investec said."The Q3 2013 numbers reveal a plunge back into the red: Attributable Loss -£826m (Q1: +£393m, Q2: +£142m) and Q4 will be much much worse (a £38bn 'internal bad bank' triggers impairment acceleration of £4-4.5bn in Q4), and we still expect IRHP top-ups, bank levy etc). RBS is on a punchy 0.9 times core profit before tax (£1.3bn) in-line; Non-Core losses spiked to £0.8bn. Sell."Nevertheless, the broker said it was enthusiastic for the recent appointment of new Chief Executive Ross McEwan and was encouraged by the company's return to net loan growth (+£0.5bn) in UK Retail and modest net interest margin recovery.Investec, quoting Oscar Wilde, downgraded Royal Dutch Shell from buy to hold and lowered its target price by 10%. Analyst Neill Morton trimmed his earnings per share forecasts 2-3% but slashed his target price by 10% as he no longer sees Shell achieving a sector price-to-earnings ratio premium over the next 12 months.He said he was "not particularly bothered" Shell would probably not achieve its $200bn cash-flow target for 2012-15 and was also "unsurprised" about the $5bn increase in Shell's net spend in 2013, but was "less comfortable" with implied net disposal figure of $15bn for 2014-15 as he predicted "magpie-like" Shell would be unable to resist "bright, shiny" investment projects.Quoth Morton: "Oscar Wilde famously declared that 'fashion is a form of ugliness so intolerable that we have to alter it every six months'. Shell would certainly agree. It is still clinging to its cash flow and net capex targets for 2012-15, even though they appear less and less achievable. We are ashamed to say we regard ourselves as being a bit trendier than Shell and downgrade to hold."Panmure has reiterated its buy recommendation on pub group Wetherspoon ahead of first quarter results on November 6th, with a 806p target price implying around 11 per cent potential upside. Analyst Simon French said he expected an upbeat sales performance reflecting longer food service hours.Wetherspoons' new food menu has led to an extension of food serving hours to 11pm following a successful trial. French suspects this may dilute like-for-like profit initially but the long-term impact "will prove another successful strategic move at a time of ongoing flux amongst the competition".AB