Broker tips: N Brown, Lloyds

N Brown's full-year results showed progress with the plan to transform the clothes retailer into an online heavyweight, said HSBC, upgrading the shares to a 'buy' rating.

HSBC, which hefted its target price to 280p from 215p, noted that the results demonstrated the improvement in the underlying performance of the 'power brands' — JD Williams, Simply Be and Jacamo — thanks to more flexible sourcing and new product collections, which helped accelerate its online growth.

Enhanced online exposure, with internet sales representing 69% of total sales and 77% of new customer sales, offers access to structurally higher growth markets despite the challenging consumer outlook, the bank said.

"From a transformation plan perspective the ‘Fit 4 the Future’ IT project is critical to realising group potential," analyst Paul Rossington wrote, noting that progress was in in line with expectations.

Improved net margins and further liability cost reductions at Lloyds will help the lender sustain sufficient capital returns to allow it to return roughly a quarter of its market capitalisation to shareholders, Barclays said.

Analysts at the broker laud the lender's positive surprises on both net interest margins and lower provision charges in its first quarter numbers.

Admittedly, the latter might not be sustained, they say.

However, the stronger NIM looks "stickier" with additional reductions in Lloyds's liability costs expected to largely offset asset pricing pressure, Barclays says.

Hence, the broker believes Lloyds will be able to sustain an underlying return on tangible equity of nearly 15%.

That, the broker explains, is what will allow it to return about 25% of its current market capitalisation to shareholders over the coming three years.