Broker tips: Barclays, Halfords, Mulberry

Nomura Securities has reiterated its neutral stance on banking giant Barclays , arguing that the potential for a re-rating remains limited while the bank faces regulatory pressures in the form of the Basel III guidelines for capital and banking regulations.By Nomura's reckoning Barclays Capital, the investment arm of Barclays, contributes around half of the group's normalised profits, but the proposed regulatory changes will lift the division's risk weighted assets to a little under two-thirds of the group total. "Higher capital requirements would reduce the effective RoE [return on equity] implied by our current normalised PBT [profit before tax] assumption at BarCap to 7% and limit group RoE to 10%," Nomura analyst Robert Law projects. Law sees Barclays' core Tier 1 (CT1) ratio being around 8.5% at the end of 2012. Though this is within the new Basel III guidelines Law notes it would be the lowest CT1 ratio among the UK banks, leaving the door open to pressure from the regulators to strengthen it further in view of the group's slightly racy business mix. Bob Diamond, due to assume the mantle of chief executive officer at the bank, has, however, indicated the group does not intend to raise equity from shareholders, the broker observes.Though bullish on the sector as a whole, Nomura is agnostic when it comes to Barclays."There is a case that the group needs a major repositioning to improve BarCap returns and change the group shape. Although strategically desirable, this could prove dilutive in the short term. That said, the shares do have valuation attractions at 0.92x our estimate of year-end tangible book value - among the lowest of the large European banks but in line with global peers such as Deutsche, Goldman Sachs and Morgan Stanley," Law concludes.It could be time to get the puncture repair kit out for the deflated share price of car parts and bikes seller Halfords after Thursday's trading update raised, in KBC Peel Hunt's words, more questions than answers.The company has guided to a range of £67m to £69m for first half profit before tax, slightly below Peel Hunt's prediction of £69.5m.The broker is at the top end of the range of full year profit forecasts at £136.4m, and following the patchy trading update expects to trim that figure by around £5m."In order to view the recent share price falls as being overdone, we need to retain confidence that the core business can deliver 7-10% EBIT [earnings before interest and tax] growth per annum over the medium term, with Autocentres also delivering significant traction," Peel Hunt analyst John Stevenson states.After two quarters of "surprising trading weakness" Peel Hunt is losing faith in the company, formerly one of its top picks in the sector, and has downgraded the shares from "buy" to "hold"."With questions over bike ranges, pricing and Autocentre trading too, we believe it is right to step back and see how management addresses these concerns," is Stevenson's view.The analyst still has to plug the latest figures into his spreadsheet model and work out new profit forecasts. The price target, which was 600p, is now under review.FinnCap is keeping the faith, however, and sticking with its "buy" recommendation, saying "Halfords offers one of the sector's more attractive dividend yields."It does have some doubts, though. "Despite guidance that the company is on target to meet expectations, we might trim forecasts. Nevertheless, on traditional measures, the shares will probably continue to appear cheap. We therefore retain a Buy recommendation, albeit with fading conviction," said analyst Duncan Hall.A strong trading update for Mulberry has led FinnCap to substantially increase its forecasts and target price for the luxury handbag maker.Over the ten weeks to 2 October sales in Mulberry's UK shops jumped 57% compared to last year. Life for like sales in full price stores for the same ten weeks were +79% on the equivalent period, while off price sales were unchanged reflecting a shortage of merchandise.That was a stronger sales performance than FinnCap had been expecting, and allowed the group to fatten its margins, with a higher proportion of sales being made at full retail price. Wholesale order intake for Autumn 2010 is expected to double compared to last year, and Mulberry has stated that they expect to see a similar pattern for Spring 2011."Mulberry's high gross margins result in substantial operational leverage", FinnCap analyst David Stoddart commented. "Given management's guidance that it expects to 'significantly exceed market expectations', we expect to upgrade the forecasts ... by a substantial amount".The broker's target price of 340p has already been substantially exceeded - currently standing at 465p - and is now under review. FinnCap therefore retains its 'buy' recommendation."Our buy case on Mulberry has always rested primarily on the long-term potential to develop the brand in international markets. Today's announcement makes clear that shorter-term trading performance is also a major positive factor," the broker said.