2nd August 2011

The relief rally enjoyed by markets post the US debt deal was short lived following the poor industrial production figures in the US and Europe on Monday morning. For the week ahead, the key focus will be earnings releases in Europe, particularly the financial sector which sees Barclays, BNP Paribas, Prudential and Aviva all report. On the economics front, while both the ECB and BOE have their monthly meetings, no changes are expected to rates. In the US, markets will be apprehensive about Non Farm Payroll numbers on Friday, post the poor industrial production numbers. Markets are likely to remain range bound for the week ahead and we would continue our focus of adding to positions in our favoured stocks on weakness.

This Weeks Market Events

MONDAY
Corporate No Releases Economics FR PMI GE PMI EC PMI US ISM

Trading Recommendations
Barclays - Buy Previous Close 217p Target 370p

Barclays released Q2 numbers this morning beating expectations. Turnover was 7.9bn v 7.46bn expected with PBT coming in at 1.67bn, also ahead. Impairment charges were also slightly better at TUESDAY 907m, continuing to decline from the Q1 number. BarCap revenues were in line at 2.9bn with FICC and Equities both in line. The revenue number was only down 11.5% QoQ, better than is peers. ROE imCorporate Economics proved yoy to 9.1% v 6.9% last year on an adjusted basis. The groups balance sheet remains strong with core tier 1 capital at 11%, higher than most European peers and TNAV increased by 9p to 353p, ahead of BMW Q2 EU PPI expectations. Also this morning, BNP Paribas released Q2 numbers with net income and revenues in line. Xstrata H1 US PCE Barclays Interim The group took a 543m impairment on Greek sovereign debt, which was higher than expected. The US Vehicle Sales Pfizer Q2 numbers this morning both highlight the difficult trading environment for banks in the current environment. BNP Paribas Q2 The Barclay numbers were good, but will be overshadowed by debt issues and concerns over growth. Coach Q4 Banking valuations are cheap with Barclays trading at 0.6x Q211 TNAV, but investors will continue to Vulcan Materials Q2 remain underweight the sector in coming weeks. We still like Barclays and would continue to hold the stock, but catalysts to move the stock higher are lacking in coming weeks.

Rio Tinto - Buy

Previous Close 4281p

Target 4700p

Rio Tinto reports first half earnings this Thursday and we are recommending buying the Australian based miner ahead of the results. The continued high commodity prices have allowed the company to completely deleverage its balance sheet leaving the stock primed for aggressive organic expansion, shareholder distributions and M&A in the second half. Furthermore, as with all the miners under our coverage, Rio Tinto remains ideally positioned to benefit from the ongoing urbanization trends in emerging markets that have driven the sector to record earnings over the last two years.

WEDNESDAY
Corporate Standard Chartered Interim Next Q2 Trade Mastercard Q2 Soc Gen Q2 Shell Ex-Div GSK Ex-Div BP Ex-Div BG Group Ex-Div Economics UK BRC FR PMI Services GE PMI Services US ISM Non Man US ADP Employment

GSK - Buy

Previous Close 1353p

Target 1500p

GSK is at a turning point for the business with headwinds greatly reduced going forward. Four current operational catalysts are a forecast return to operational growth in FY12; diversification into emerging markets (37% of H111 business generated outside the US and Europe); a strong pipeline (c.30 studies on 15 Phase III products due to report by the end of FY12); and new products delivering on revenue ($531m in Q211). These catalysts support our Buy recommendation and we would be looking to pick up the stock at current levels as it moves on from newly established support levels. Look for additional support from the current share buyback programme (up to 2bn) and the proposed return of consumer business sale profits through further share buy backs or a special dividend.

THURSDAY
Corporate Kraft Q2 RSA Interim Unilever Q2 Aviva Interim Lloyds Interim Rio Tinto Interim Ladbrokes H1 Deutsche Telekom H1 Economics US Jobless BOE Rates ECB Rates

GE - Buy

Previous Close $17.97

Target $21.20

General Electric (GE) recently released Q2 results which were ahead of market expectations. The results were driven by strong emerging market demand which saw infrastructure orders up 24% reflecting robust strength in equipment orders. The company said it was optimistic about its growth prospects in the second half and beyond with order backlogs at a record $189bn. The stock trades at 13.8x F/Y 2011 earnings, 11.3x F/Y 2012, and offers a dividend yield of 3.4%. The companys increasing exposure to overseas markets (53% of Turnover) along with the restructuring of GE Capital, leaves the group in a strong position to achieve its target of solid double digit operating earnings growth for the year. Buy.

Man Group - Buy

Previous Close 218p

Target 260p

Man Group has tracked back to levels that we are comfortable at and as such we reiterate our Buy. The group benefits from a robust balance sheet with a net cash position and strong capital levels. The acquisition of GLG does reduce the reliance the group has on the performance of AHL and we expect the benefits from the deal to flow through in coming quarters. Man Group trades at a discount to peers based on 2013 earnings. Our price target of 2.60 values the group at 12.5x 2012 earnings a slight premium to the sector while the dividend yield of 5.7% is well covered.

FRIDAY
Corporate Prudential Interim P&G Q4 William Hill H1 Allianz Q2 Royal Bank of Scotland Interim Economics UK PPI German Ind Prod US Unemployment (Non Farm Payrolls)

Aviva - Buy

Previous Close 396p

Target 500p

Aviva report interim numbers this Thursday, while the result will be slightly complicated due to the deconsolidation of Delta Lloyds in the period, the group is expected to report strong underlying improvement in IFRS profit. With Life sales remaining strong, non-life premiums continuing to harden, we are Buyers of Aviva. The restructuring of the group along with the strong dividend are positives, as is the lack of exposure to peripheral debt within the Euro-Zone, having reduced its exposure last year.

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