LONDON (ShareCast) - Morgan Stanley has raised its ratings on Bradford and Bingley and Alliance and Leicester to ‘equal-weight’ from ‘under-weight’ in a cautiously optimistic note on the mortgage lenders.

It also lifted its price target on B&B by 50% to 75p. The broker said the intention of Resolution, an investment vehicle backed by insurance entrepreneur Clive Cowdery, to invest £400m in the bank underpins the stock.

B&B rejected the Resolution proposal yesterday in favour of a rights issue and aninvestment from the private equity group TPG Capital.

Resolution’s interest – and that of TPG – shows that investors with a long-term view are willing to buy into the sector at current prices, Morgan said. A £400m investment would make B&B the UK’s best capitalised bank, the broker observed.

However, Morgan still sees challenges ahead for the mortgage lending sector, with the UK housing market continuing to weaken and volumes in the buy-to-let market looking like declining significantly.

Morgan said its upgrade on Alliance and Leicester was justified following the drop in the bank’s share price below the broker’s 320p price target.

Further support may come from possible consolidation in the sector after Resolution’s interest in B&B, it said.

However, it also noted that A&L’s business model has been seriously impaired by the credit crisis.

JP Morgan has cut its price target on the electrical retailer Kesa Electical to 200p from 240p, but kept its ‘overweight’ rating on the stock, following Tuesday’s results.

The broker noted that profits at Comet in the UK and Darty in France were in line with expectations – with ‘excellent’ fourth quarter like-for-like sales growth of 4.2% - but said earnings per share were 5% off forecasts due to weak performance in Spain.

JPM said it expected Darty and Comet to continue performing well, but said losses from Spain, a new market entry, made the cost of the business’s transition very high.

Rexam was a strong performer Wednesday morning after Credit Suisse raised its rating on the can maker to ‘outperform’ from ‘neutral’ in anticipation of a return to growth following a sluggish two years.

The broker noted that Rexam was locked into long term contracts in 2006 and 2007, meaning it could not offset higher aluminium prices.

However, it now sees strong drinks can volume growth, price recovery, margin expansion and acquisitions driving earnings growth.

Rexam is an attractively valued defensive stock, Credit Suisse said.

It trimmed its price target on the stock to 535p from 540p.

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