A better cut and paste - It's nothing more gratifying than seeing a well known bear capitulate, and join the masses, after being wrong for 3 months. Adds more weight to the argument that too many think its all good.
Below, excerpts of one of the last banking bears in Europe. It's a good read, even for those who don't like fundamental news, or don't trade individual UK stocks. Personally, I like UK Equities, its done well for me, especially the one below. (Note the last paragraph, where his price target changes)
Update The acceptance of Blackrock’s offer for Barclays Global Investors (BGI) on 16 June accomplished three things in our view: 1) it materially transformed the bank’s earnings profile 2) signified a step change in strategy, and 3) significantly added to the capital position, dampening but not eliminating leverage and capital concerns. We had previously estimated a £15-20bn deficit in tangible common equity (TCE). However following the bank’s actions in Q2 09 (e.g. BGI and exchange offer), the rally in the share price, continued momentum in capital market revenues, and assuming conversion of £3bn in warrants, we now believe the bank has effectively raised at least £8.5bn of capital.
Impact Our 2009-2011e estimates are updated to include the BGI transaction, the exchange offer, and a material uplift in our expectations for revenues within Barclays Capital. These uplifts to profits are countered by our more pessimistic assumptions on bad debts. We also assume £5.8bn of gross credit market related writedowns in 2009e. We now believe the bank will trade profitably in 2009e and 2011e but we expect it to be loss-making in 2010e. We assume cash dividend payments will restart in Q4 09 (initial cash dividend of 1.3p in Q4 09e). We now expect Barclays Capital to account for 57% of underlying earnings by 2012e and believe the greatest risk to our forecasts is our estimates for revenues within Barclays Capital. Every £1bn of revenue lost or gained in Barclays Capital would reduce/add 3p to our EPS.
Target price & rating We upgrade to Hold from Sell on a 2010e TP of 260p (vs 46p), making Barclays our top pick amongst UK banks on which we continue to adopt a cautious stance. We arrive at our new target price by discounting our 2012e EPS back to 2010 (discount rate: 12%). We use 2012e as our base given the challenging conditions we expect to persist in Barclays’ key operating markets over the next 30 months. We acknowledge that, while not all of Barclays problems have been addressed, evidence suggests a solid foundation for future independent growth has emerged.
Next events & catalysts US bank Q2 reporting season begins on 13 July with Goldman Sachs. Barclays reports its H1 09 results on 6 August.
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