Broker tips: RBS, ARM Holdings, Astrazeneca

Societe Generale upgraded Royal Bank of Scotland to ‘hold’ from ‘sell’ with an unchanged price target of 330p.

It said the long-term view for RBS is attractive, namely to become a UK-focused retail and commercial bank. SocGen said the de-risking of the balance sheet has really taken hold over the past 18 months, with non-performing loans down by more than half from their peak and the core tier 1 ratio over 15% pro forma for the sale of Citizens.

SocGen expects RBS’s core tier 1 ratio to rise 350 basis points to 15.8% in the second half of the year. Of the improvement , 300bps relates to the regulatory deconsolidation of Citizens, which should happen when RBS has sold more than 80% of the company.

The bank said there are significant headwinds to come. It estimates that there will be over £6bn of restructuring and litigation/conduct charges and government payments.

“These are a drag on tangible book value, which we see falling from the current 382p to 360p at the end of next year,” said SocGen, although it added that this is now priced in.

It continues to prefer Barclays, Lloyds Banking Group or HSBC.

JPMorgan Cazenove upgraded ARM Holdings to ‘neutral’ from ‘underweight’ and kept its price target at 850p.

“With ARM stock having corrected since the beginning of July, we believe the stock is discounting the impact of the smartphone correction even though consensus estimates likely remain too high.”

JPM said it reckons growth from 2014 to 2020 will be lower than it was between 2009 and 2014, so it does not see substantial under-valuation, hence why it hasn’t taken a more bullish stance on the stock.

The bank said it has had a relatively cautious view on ARM for a while. It noted that the shares have corrected more than 10% since July 2015 and are down almost 25% from the March 2015 peak.

It said ARM is now trading on 25.7x consensus 2016 earnings per share. This implies a substantial de-rating from a multiple of around 35x at the start of this year and peak multiple of around 50x in 2011.

“Thus, we think ARM’s stock is now beginning to reflect the potential of slower royalty growth in 2016 versus higher 2010-2013 growth.”

Pharmaceuticals giant AstraZeneca got a boost after HSBC upgraded the stock to ‘buy’ from ‘hold’ on share price weakness and ahead of oncology news flow.

The bank noted that AZN’s shares have fallen 8% since the beginning of August and 16% since the year’s highs in April. It attributed the decline in the short term more to global market volatility than any fundamental issues with the stock.

In addition, HSBC said AZN has a large amount of news flow on late-stage research & development pipeline products due before the year-end, especially in the oncology and immuno-oncology areas, with AZD9291, tremelimumab and durvalumab clinical data , which could be material for the shares.

“In our view, AZN’s oncology franchise is likely to be the main driver for the growth of the business over the next decade, with oncology revenues increasing from $2.7bn in 2015e to $17.8bn by 2023e, on our estimates.This will more than offset the challenges for the group in other competitive therapeutic areas such as diabetes.”

The bank cut its price target to 4,600p from 4,640p as it adjusted its forecasts following AZN’s deal to out-licence brodalumad to Valeant Pharmaceuticals.