Broker tips: Schroders, Reckitt Group, Jet2
Numis has trimmed its target price for Schroders from 380.0p to 365.0p on Thursday after first-quarter results from the asset management firm were "a little weaker than expected".
As at the end of March, Schroders' assets under management (AuM) were £760.4bn, up from £750.6bn at the end of December 2023, but 1% shy of the consensus estimate of £769bn and 3% short of Numis's own £782.6bn forecast.
"All areas fell slightly short of our and consensus expectation, with Solutions the biggest detractor (c.3-4% light)," Numis said.
The broker said that, given that Schroders does not publish a flow/performance breakdown, it's hard to accurately determine whether this is due to flows or performance – or both. However, "we think it is reasonable to assume though that the group was in net outflow in most areas of the business, given the reported AuM and market movements in key asset classes in the period."
Numis, which has a 'hold' rating on the stock, reduced its earnings per share forecasts for Schroders over the next two years by 7% and 8%, respectively, and said the stock's current valuation – trading at around 12 times forward earnings – was "fair" for now
"We believe that, on balance, the ongoing strategy to reposition the group towards Private Markets, Wealth and Solutions is the right one for the group, however the traditional areas still dominate today," the broker said. "Consequently, if investors desire exposure to these higher growth parts of the industry, we would advocate investing in the pure plays in those areas, rather than Schroders."
Analysts at Berenberg lowered their target price on household goods manufacturer Reckitt Group from 5,800.0p to 5,100.0p on Thursday, citing limited visibility going forward.
Berenberg noted that Reckitt's Q1 results revealed that group like-for-like sales grew by 1.5%, ahead of visible alpha consensus expectations of a -1.1% decline, driven by a price/mix of 2.0% and a decline in volumes of only 0.5%, the latter of which was significantly better than the 3.3% expected.
At the divisional level, hygiene achieved like-for-like sales growth of 7.1%, while health like-for-like sales grew by 1.0% and nutrition declined by 9.9%, better than the 14.2% drop predicted by analysts. Actual group sales of £3.73bn also came in 1% ahead of consensus.
"After six quarters of mid-single-digit volume declines, the better-than-expected volume development in Q1 will likely lead some investors to review the investment case on Reckitt. The bull case, in our view, includes the potential return to volume growth, which appears closer than it did a few months ago (we now expect volumes to turn positive in Q3 versus Q4 previously). Growth from pricing could also prove more resilient, with management taking selective price increases this year and a constructive outlook on mix as innovation platforms seem to be supporting premiumisation within the company’s Powerbrands. Therefore the earnings downgrade cycle may not persist into H2 2024 as we previously anticipated," said Berenberg.
"That being said, after years of significant volatility, the bear case includes limited visibility and risk to earnings from a deterioration in the consumer backdrop, unfavourable FX and earnings-dilutive business disposals. In addition, ongoing litigation risks relating to the necrotizing enterocolitis (NEC) trials in the US, could limit any short-term stock rerating."
In addition to lowering its target price on the stock, the German bank also reiterated its 'hold' rating on Reckitt shares.
RBC Capital Markets lifted its price target on Jet2 on Thursday to 2,000.0p from 1,950.0p following the company's trading statement a day earlier.
The Canadian bank said it was making minor changes to profitability forecasts and incorporating Jet2's FY24 gross cash position of around £2.3bn, which was ahead of its previous expectations of £3.0bn and drives the increase in the price target.
"The modest increase in our PT is more notable in the context of Jet2's share price decline yesterday," it said.
RBC noted the shares fell after the trading statement, with commentary on summer 2024 pricing prompting concern.
Jet2 said in the statement that booked-to-date pricing for Summer 2024 was showing a modest increase, although recently, pricing has been more competitive, particularly for April and May departures.
However, RBC said it wasn't concerned by the summer 2024 pricing commentary and that its FY24/25 holiday/ticket yield forecasts up around 2.5%/2.7% are not significantly changed. It also said the valuation remains attractive.
"Considering valuation on an average of the EV with and without deferred revenues, Jet2 trades on circa 4x 24/25 EV/ EBIT below easyJet on circa 6.2x 24/25 EV/EBIT (on the same basis) on our forecasts, both at a discount to European ultra-low cost carriers," it said.