Broker says Barclays shares undervalued despite rally

UBS has slapped a buy rating on the bank's shares, but has also cut its estimates, warning that Barclays's investment banking arm, BarCap, failed to maintain the stellar performance it delivered during the first half of last year.

Despite forecasts for a drop of a quarter in revenues at its fixed income, currency and commodities arm this year, UBS believes that BarCap should be able to keep sales at close to last year's levels, but achieve much better profitability. It also says that lower impairments should partially offset any decline.

UBS adds that the trading environment remains challenging across the industry, but the regulatory agenda could be more onerous for Barclays than its overseas rivals. But it is impressed with the moves made by the group to recapitalise and say that its ability to "earn its way through headwinds" leaves it well-positioned to handle any changes.

Analysts at the Swiss bank also note that Barclays is the only member of its international peer group that is currently trading below its book value, hence they are still buyers of the stock. Today they were up 8p to 323½p.

Shares in London were largely unmoved, with the FTSE 100 index rising just 3.8 points to 5530.52. Investors were sitting on their hands in the morning session, waiting for news on crucial US economic data, the non-farm pay rolls, for direction.

Mining giant Eurasian Natural Resources Corporation claimed the crown among top stocks, 52p stronger at 1034p after Royal Bank of Scotland advised clients to snap up the shares. Analysts at the bank have raised their expectations for its earnings over the next two years and raised their target for the stock from 850p to 1100p.

But Man Group was the worst performer on the blue-chip index. Shares in the hedge fund giant slid 6p to 321½p after Morgan Stanley put an equalweight rating on the stock, warning tha the performance of Man's funds remains a risk to its performance.

It isn't just the energy giants such as Centrica raking it in from the cold snap. Halfords, the bike to car parts retailer, is expected to have seen a boost from the Siberian-style winter engulfing Britain, as car owners snap up spray-on defroster and anti-freeze in bulk.

Credit Suisse today hiked up its expectations for the chain's third-quarter, like-for-like sales from -3.5% to 2.5%.

The broker has also raised its forecasts for profits before tax this year by 6% to £112 million, and upped its target price for the shares to 460p. Today the shares climbed 4½p to 416p.

Gartmore Group, the investment house which floated recently, has found itself on the shopping list of a number of City institutions, including one of its former suitors. Fund management group Henderson, which four years ago tried to buy Gartmore with Schroders but was outbid by private equity group Hellman & Friedman, has taken an 11% stake in the group.

Earlier this week, Credit Suisse, which has been snapping up Gartmore shares since the flotation, announced that it has built up a 5.8% holding in the fund management giant, making it the third biggest shareholder. Hellman & Friedlander remains Gartmore's biggest investor, with 22%.

Gartmore, which floated at 220p, initially traded below the float price but its shares have since bounced back. Today they were changing hands for 224p, off 2p.

Vodafone, which was hit yesterday after Verizon played down the chances of their US joint venture paying a dividend this year, slipped another 1¼p to 137½p. Analysts at Execution rate the shares a buy however, with a price target of 170p.

The stockbroker argues that - ironically - the warning from Verizon's chief executive on earnings because of higher pensions costs, actually makes a dividend more likely.

This is because the growing risk of additional pension and healthcase contributions will increase the pressure on Verizon Wireless to deliver a payout to shareholders.

Nomura disagrees, reiterating its cautious stance on trading at the phone giant this year.

The Japanese broker warns of continued negative earnings momentum and its failure to unlock value from the Verizon Wireless stake, and predicts that its US division may struggle.