Broker tips: RSA Insurance, Abcam, JD Sports

Jefferies downgraded its rating on shares of RSA Insurance on Monday to ‘hold’ from ‘buy’ after the insurer confirmed last week that it was in talks to sell itself for £7.2bn to a consortium comprising Canada’s Intact Financial Corp and Denmark’s Tryg A/S.

It said that since news of the talks, the shares have risen by 44%, which is what has triggered the downgrade.

Jefferies noted that the bid is highly complex, involving multiple regulators on three continents and requiring a new joint venture arrangement to be set up in Denmark.

"Such a transaction could take longer to complete, suggesting that a greater discount for the time value is warranted," it said. "As such, though we raise our price target to 650.0p, we downgrade RSA to hold."

RBC Capital Markets has downgraded its rating on life sciences firm Abcam, sending the shares lower.

The bank cut its recommendation to 'sector perform' from 'outperform', although it left its price target at 1,500.0p per share.

RBC said that a number of life science firms that specialise in research tools had recently reported third-quarter numbers. “All report sequential improvement in demand, and many sound more bullish around mid-term research funding uplifts,” it noted.

However, it opted to downgrade Abcam based on valuation, stating: "We had become more confident at the first-half results that Abcam would accelerate its revenue growth rate, and increased our price target accordingly, based on a probability-weighted scenario analysis."

RBC added: "Although the funding commentary providers further modest de-risking of the bullish scenario, near-term earnings risks remain, particularly in light of limited guidance on operating investments."

JPMorgan Cazenove initiated coverage of JD Sports at 'overweight' on Monday with a 1,000.0p price target, as it hailed the company "the sports fashion champion".

While the sporting goods sector is seeing significant changes in the way brands distribute, we think JD Sports is standing out as a partner of choice for these brands, and should continue to benefit from ongoing wholesale consolidation in the medium term," JPM said.

It expects to continue to see solid topline and earnings growth, at 9% and 14%, respectively, over the next three years, broadly in line with sporting goods brands.

The bank said that trading at a 45% discount to sports brands, JD Sports is an attractive way to play the positive dynamics of the broader sporting goods industry, hence the initiation at overweight.

"Given the relative resilience of the sector so far during Covid-19, we would use short-term weakness and volatility as buying opportunities," it said.

JPM said that JD’s exposure to a strong and growing sector, solid execution and a successful omni-channel proposition means it has delivered LFL growth of 10% on average over the last five years.