Broker tips: Inmarsat, Lloyds, Countrywide

Morgan Stanley hailed Inmarsat's decision to axe its dividend payout by almost two-thirds, but warned clients the company's debt pile was set to continue growing.

Indeed, the broker forecast that as a proportion of earnings before interest, taxes, depreciation and amortisation, net debt would rise from 2.8 in fiscal year 2017 to 2.9 in 2018 and then 3.4 in 2019 as a result of lower payments from US-based Ligado and high levels of capital outlays.

While remaining within the limits set under its debt covenants, free cash flow would not cover its rebased dividend until 2021.

The analysts also thought their forecast for 1% growth in sales from Maritime might be "too optimistic", further pointing out the low cash flows expected by the firm from a typical inflight connectivity agreement with airlines.

Analysts at Credit Suisse sounded a positive note on European banks, telling clients earnings upgrades driven by revenue growth should see the group re-rate and that lenders' shares were pricing in only modest interest rate increases.

"We think the best way to gain exposure to rising rates is through banks, which are priced for only 25-30bp higher rates," they said.

In particular, the analysts expressed a preference for shares of UBS (target price: 22 Swiss francs), Lloyds (target price: 85p), Danske Bank (target price: 27 Danish Kronor), Natixis (target price: €8.0) and Santander (target price: €6.50), all of whose shares they rated at 'outperform'.

"Our preferred names are a mix of capital return stories, with > 6.0% total yield, and banks benefiting from benign asset-gathering trends, driving the top-line and enhancing capital generation, and with a high level of visibility."

Credit Suisse also highlighted the possibility that the regulatory outlook could improve, with EU politicians likely to water-down the Basel Fur proposals, and that capital returns might surprise to the upside.

Analysts at Credit Suisse maintained their ‘underperform’ recommendation for shares of Countrywide on Tuesday, citing a range of negative factors which were expected to bear down on the share price.

In a research note sent to clients, Credit Suisse’s analysts noted how Countrywide management itself had said the company might experience its "most significant challenge since its IPO", which led them to place the company at the bottom of its through-cycle multiple range.

They also marked down their estimates for sales between 2018 and 2020 by an average of 12% and their EBITDA forecasts for 2018 and 2019 by an average of 32%.

Combined, that saw them revise their target price for Countrywide's shares down from 111.00p to 77.00p.

They also highlighted how the group, which is the largest estate agent in the UK, as well as being the largest letting agent, single mortgage broker and one of the largest surveyors, was now attempting to reverse its strategy of the past three years.