Broker tips: Hargreaves Lansdown, Sirius Minerals
Hargreaves Lansdown was under pressure on Tuesday after Credit Suisse initiated coverage of the stock at ‘underperform’ with a 1,740p price target as it launched coverage of the European diversified financials sector.
The bank said its 2020-22 earnings per share forecast for HL are 6-13% below consensus expectations and it reckons the stock’s premium valuation is difficult to support in the face of near-term headwinds.
CS said "momentum looks challenging" as HL missed its performance targets for fund flows, new clients and profit before tax in FY19. The bank estimated that underlying net fund flows slowed from £6.9bn in FY17 to £6.6bn in FY18 and £6.1bn in FY19.
"We think momentum is starting to look challenging for this 40% market share, 65% EBITDA margin, retail-facing business," it said.
"We see continued headwinds from the impact of the gating of the LF Woodford Equity Income fund (held in some HL Funds)," it added.
CS noted that HL trades at a premium to peers, reflecting its ability to gather assets under administration and grow earnings, even in difficult conditions. However, it said the valuation is vulnerable "given flow and margins, as well as potential reputation risks for this retail investor-facing company and the risk of consensus earnings downgrades".
Analysts at Berenberg slashed their price target on fertilizer development company Sirius Minerals from 17p all the way down to 4p on Tuesday, citing increased uncertainties regarding the firm's finances.
Sirius Minerals revealed in August that the timescale previously given for its proposed $500m high-yield bond issue would no longer be maintained and Berenberg pointed out that offering had been key to the group unlocking a $2.5bn revolving credit facility that would have secured financing for its Woodsmith mine project.
With the company now indicating that it will pump the brakes on its pace of construction in order to satisfy current liquidity constraints and initiate a process to secure strategic investment, Berenberf said a strategic investor appeared to be "the only lifeline left for the company".
Berenberg, which reiterated its 'hold' rating on Sirius, also noted that financial backing from the UK government appeared "unlikely".
"It appears that government guarantees or backing are unlikely for the foreseeable future, especially if the current political uncertainty persists," said Berenberg.
"Given the increased uncertainty about financing, we reduce our assumption about the probability of completion of the mine to 25% (from 50%) and assume further delays to start-up."