Broker tips: StanChart, National Grid, United Utilities

StanChart´s stock looks oversold in the near-term so there is upside to be had in the shares and with the announcement of a rights issue behind us investors will soon be past the point where they are fearful of the risks of dilution a top broker said on Monday.

However, there were two more hurdles to overcome which were still some ways away. Asian economies had yet to bottom and non-performing loans to start falling, Nomura said.

If one expected a shallower cycle and an imminent inflection in the macro backdrop they could argue otherwise.

Yet Nomura´s forecasts were for the rate of growth in China´s gross domestic product to slow to 5.8% in 2016 and 5.6% in 2017. That compared to the median consensus forecast for an expansion of 6.5% in 2016 and 6.2% in 2017.

Trading on 0.7 times price-tangible book value ex-rights and with near-term downside risks to its tangible book value, the stock was "around fair value on current prices," analyst Chintan Joshi said.

The broker revised its target price on the shares to 640p on an ex-rights basis (with the then current price at 614.7p and 578.8p ex-rights), which in its opinion suggested approximately 10% upside.

Joshi reiterated his 'neutral' recommendation on the shares.

Citi suggested that if National Grid sells its gas distribution business, as claimed in the weekend newspapers, it would use the cash for an acquisition or to pay a special dividend.

The broker added that the article suggested the disposal has been sanctioned by outgoing chief executive Steve Holliday, who announced last week that he will retire by the financial year end, March 2016.

"In our view, given the current full valuation of UK regulated assets, we believe a disposal of regulated network assets is a good way to monetize these valuations and should be welcomed by the market," Citi said.

However, analysts wondered if the transaction premium to regulatory asset value (RAV) live up to share price implied RAV premium.

Citi remained 'neutral' on National Grid's shares.

Societe Generale cut its rating for United Utilities from 'buy' to 'hold' despite an expectation of reassuring first half results due out on 25 November.

It said the recent strong share price performance (+14% relative to FTSE 100 since August) had driven the share price marginally above its 940p fair value and "the strong share price performance has been at odds with the recent rise in real bond yields (given 0.6x historical beta to gilt yield movements)".

However the investment bank noted that United Utilities remained its preferred UK water holding and that it still prefers UK water over UK energy in the utilities market.

Exane remined neutral on the stock, but updated the price target to 900p from 870p.