Market Report: RBS investors bank on blocking split
Tuesday 09 July 2013
Rumours that small shareholders may be able to veto George Osborne's plan for a good bank/bad bank split of Royal Bank of Scotland were a reason to pile into the shares yesterday. If minority investors in the taxpayer-owned bank could block a break-up proposed by the UK government then there is hope for the bank, the City decided.
Ian Gordon, a banking expert at Investec, said: "Although we regard the Chancellor's separatist agenda as overly negative, we take considerable comfort in terms of damage limitation from the requirement for minority shareholder approval."
Mr Gordon said "RBS shareholders will surely not allow themselves to be used as 'turkeys voting for Christmas'" and added that the "exceptional progress" that RBS has made on reducing the size of its problem loan book was further evidence of "the futility of any separation".
If the bad bank split went ahead investors would need to stump up cash to recapitalise the bad bank; and the minority shareholders – who own 19 per cent of RBS's share capital – don't like the sound of that.
Another reason to buy its shares, Mr Gordon, argued, is that it will be a "key beneficiary of the second-quarter recovery in mortgage volumes". He gave RBS a 310p price target.
The bank's shares have slumped in recent weeks after its chief executive, Stephen Hester, said he would leave, but yesterday it recovered more than 4 per cent – climbing 12.1p to 288.8p – and was top of the blue chip index.
Lloyds Banking Group, also partly owned by the taxpayer, followed RBS up the index after rumours that bidders were circling to buy a stake.
Interest in Lloyds is said to come from a consortium of sovereign wealth funds led by the former Standard Chartered chief executive Lord Davies. Although reports that the Singaporean sovereign wealth fund Temasek is part of the gang were played down, the City bought the idea that interest is hotting up for the sale of the Government's 39 per cent stake.
The Government is said to favour an institutional placing, but a sale to a consortium is feasible. Lloyds shares are valued in the Government's books at 61p each and a £4.5bn tag has been put on Lord Davies' bid.
Lloyds' banked a 2.47p rise to 67.1p.
On a beautifully sunny day in the City traders were buoyed by superb sporting results from the weekend, and the benchmark index rallied. Chris Beauchamp, a market analyst at the spreadbetting group IG, said: "A weekend of sun and sporting success has put everyone in a good mood, with the markets reflecting this. After Friday's disappointing finish in London, US markets were able to recover their form, and this has put the FTSE 100 on the front foot."
The FTSE 100 soared 74.55 points to 6,450.07.But analysts urged investors to enjoy the success while it lasts as the brighter outlook could be short-lived. "Major indices have managed to shrug off the Fed-induced volatility, but with the minutes of the latest meeting due out on Wednesday we could be in for a rude shock," Mr Beauchamp warned.
On the mid-tier index Kier said it is trading in line with expectations, with margins at 2 per cent, and its purchase of May Gurney Integrated Services completed. But the construction and support services group lost 18p to 1,250p.
UBM, the events business and publisher, edged up 11.5p to 668p following a buy recommendation from Liberum Capital. Its analysts prefer UBM to its rival Informa because it has a "higher-quality business model" and "potential for corporate restructuring" and is a "more credible bid target than Informa". They rate it a buy with a 890p price target.
The fantastic sporting weekend, including Leigh Halfpenny (pictured) helping the British and Irish Lions beat Australia, was not too good for betting firms that had to pay out millions, but online betting exchange Betfair's share price was hit by news of a share placement. Traders said that 11 million shares, or nearly 11 per cent of the company, have been sold by Charlton Group for Softbank at 809p a share. Betfair tumbled 39.5p to 840p.
Thailand's former premier Thaksin Shinawatra, is reportedly taking a look at the troubled coal miner Bumi. Mr Shinawatra is thought to be in talks to buy the 23.8 per cent stake owned by the Bakrie family, who co-founded Bumi three years ago with Nat Rothschild. Bumi's shares were suspended two months ago.
Buy: ANITE GROUP
Snap up shares in Anite, Investec insists. The broker thinks that although the shares fell last week after the technology group announced its fourth-quarter results it still has potential. Analysts at Investec think M&A and organic development should "sustain the medium-term picture" for the shares and they rate the supplier of testing software to mobile phone makers a buy with a price target of 155p for shares that are 137.8p.
Flog shares in cash and carry group Booker, Shore Capital suggest. Shore is impressed by how it expanded its sales and market share after its purchase of rival Makro in the UK. But they think its valuation is "just too steamy for comfort". The brokers rates it a sell with a 127p price target for shares that are 128.1p.
Hang on to publisher Pearson, Jefferies advises. The broker thinks it is "a country mile ahead of any of their publisher competitors" but it faces a tough challenge to remain successful in the face of a declining market, the rise of online and growing competition. Jefferies rates it a hold with a 1,240p price target for shares that are 1,214p.
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