Broker tips: Schroders', NMC Health
Analysts at Berenberg lowered investment manager Schroders' from 'buy' to 'hold' on Tuesday, noting there now appeared to be "little upside" left to their 3,510p target price for the shares.
Berenberg stated that shares in Schroders' had performed strongly in recent months, up 37% year-to-date - mostly reversing the "acute mispricing" that developed towards the end of 2018.
"Since consensus 2020 earnings have fallen by 10% over the same period, Schroders' shares have become materially more expensive as the year has progressed," said Berenberg.
The German bank also noted that with FX headwinds as the pound strengthened were likely to hold back earnings growth for the current quarter.
"We do not expect Schroders' earnings momentum to improve in the near term. Although quarter-to-date market moves have been positive, any benefit of this to Schroders has been undone by adverse foreign exchange movements."
Berenberg said it was "more optimistic" that Schroders will benefit from a recovery in industry-wide flows in 2020, but that strength appears to have come too late to "meaningfully support" its second-half numbers.
The analysts also highlighted that in the first half of 2019, the fund manager had generated a return of only 4.0% on its seed and surplus capital.
"In the absence of a clear path for this capital to be returned to shareholders, we understand why investors may be reluctant to make this adjustment to the group’s valuation," Berenberg concluded.
Shares of Abu Dhabi-based healthcare centre operator NMC Health tumbled on Tuesday after research firm Muddy Waters said it had "serious doubts" about the company’s financial statements, accusing it of manipulating its balance sheet to understate debt.
Muddy Waters, which was founded by renowned short-seller Carson Block, noted concerns about NMC’s asset values, cash balance, reported profits, and reported debt levels.
The research firm said NMC’s $107.4m investment in redeveloping NMC Royal Women’s Hospital contains "numerous red flags", while its $36.4m acquisition of 70% of Premier Care Home Medical and Health Care appears to be "a significant overpayment".
"Many investors are under the impression that NMC does not use reverse factoring. In addition to a Credit Suisse supply chain finance fund (of which some investors are aware) that holds notes issued by NMC, we found a reverse factoring facility arranged by an outfit called Channel Finance that appears to convert NMC payables into debt.
"The Channel Finance notes have been de-listed as of November 2019, which we suspect could be an attempt to cover up NMC’s use of this facility. The amounts used in each are material in our view, and we believe that they are not included in NMC’s debt figures."
Muddy Waters, which is short NMC, also said the company deliberately understated its debt by about $320m as of FY 2018 by not reporting leases associated with its Aspen Healthcare acquisition as finance leases.
"We are unsure how deep the rot at NMC goes, but we do not believe that its insiders or financials can be trusted," it added.