Broker snap: Market undervaluing Interserve's earnings trajectory

RBS raises its target price for support services and construction group Interserve by more than a half, and says that if management can fulfil its medium-term targets, then the risk/reward potential is on the upside.The group's pre-tax profit for 2010 of £69.6m exceeded the broker's forecast of £65.9m and the results provided a "more upbeat statement than we had expected and the likelihood that growth will resume in important markets for the group, such as Qatar," RBS said."With the group having stated that it has the capacity to double earnings per share (EPS) within five years (from 2010) via organic means... and given that we expect our 2013 EPS forecast to be only 7% higher than 2010's EPS, we question whether the risk/reward balance of the shares takes the group's assertion into account," the broker said.RBS remains a 'buyer', but raises its target price significantly to 375p, from 236p.---bc