Broker tips: Glencore, HSBC, Barclays, Aldermore

Commodity trader Glencore took a beating on Monday, falling to its lowest level since its IPO in 2011, after Investec said the company’s equity value is zero at current spot prices, but two analysts came out in its defence on Tuesday.

Citi, which rates the stock at ‘buy’, said the market’s response to concerns around balance sheet and liquidity, as seen through the sharp drop in the shares and rise in CDS spreads, is overdone.

“We think that Glencore will promptly execute a streaming deal and/or a stake sale in agriculture business as outlined at original announcement which would be both credit and equity positive,” it said.

Meanwhile, Bernstein, which rates the stock at ‘outperform’, argued that there is genuine economic value to be found in both Glencore’s commodity trading business and its industrial metals and mining business.

“Even if we assume that the industrial assets continue to produce spot EBITDA margins (at spot commodity prices which are particularly depressed at present, with margins of only around 15%), and no contribution from the marketing business, we still see 93p of value. And this assumes that commodity prices never recover from their currently depressed state!”

Nomura remains bullish on domestic UK banks, highlighting Barclays and Lloyds Banking Group among its top five picks in the sector.

It said that despite a number of headwinds facing the UK banks, they appear well positioned relative to peers in terms of capital, underlying profitability, growth and earnings expectations.

Nomura kept its ‘buy’ rating on Lloyds and Barclays. It kept Royal Bank of Scotland, HSBC and Standard Chartered at ‘neutral’ and said it sees a more cautious outlook for the UK Asian banks, given macroeconomic and asset-quality risks, despite a substantial period of underperformance.

Aldermore is often described as a “challenger” to the larger UK banking groups but in reality it is largely unaffected by them, Investec said.

At least in the short-to-medium term, that should continue to be the case, meaning the shares are trading at an excessive discount versus peers, analyst Ian Gordon wrote in a research note sent to clients.

The lender is primarily a mortgage/buy-to-let play with strong, sustainable loan growth (£1.4bn (or 36%) in the year to 30 June 2015), high returns (unleveraged RoE of 18.6% in H1 2015) and a rapidly improving cost-to-income ratio (53% in H1 2015, falling to 39% by 2017e).

“Clearly, current levels of low impairment (20bps) are flattered by both a benign environment, and growth. However, we think that Aldermore’s disciplined adherence to prudent lending multiples should render this concern unfounded. 99% of its SME Commercial mortgage portfolio is sub-75% LTV.”

Gordon initiated coverage on the lender with a ‘buy’ recommendation and a target price of 325p.