Broker tips: Aldermore, Aviva, DMGT

Deutsche Bank downgraded Aldermore Group to ‘hold’ from ‘buy’ and cut the price target to 267p from 330p pointing to another headwind for the buy-to-let market following Wednesday’s Autumn Statement.

It noted that the UK government has announced an increase in the stamp duty by 3% for BTL mortgages from April 2016.

“Given this latest change, and that we cannot rule out further amendments in the future if regulatory/policy aims on BTL are not achieved, we have lowered our loan growth assumptions for Aldermore, impacting EPS forecasts,” said DB.

It said the text in the Autumn Statement suggests the stamp duty change could be exempt for corporate or owners of more than 15 properties.

However, DB reckons the combined effect of these two measures and potential further regulatory change could see growth in the BTL market slowing.

It said that Aldermore is a small player in the market and could take share from other players, but a lower growth market could see greater price competition between peers, and/or a move for Aldermore to increase its share of owner-occupier mortgages, which are lower margin and lower return on equity due to Aldemore’s 35% standardised risk weight.

“We doubt that we will get clarity on the full impact of these changes on the BTL market until after April 2016 (when the stamp duty change is introduced),” it added.

RBC Capital Markets has downgraded Aviva from ‘Sector Perform’ to ‘Underperform’ based on the company’s solvency ratio and as it steps away from the bulk annuities market.

The investment bank believed the insurance company’s economic capital coverage ratio at 172% was towards the lower end of what investors would find acceptable.

“We believe investors will be comfortable with ratios of 180% for life companies and 150% for non-life companies. Aviva is a composite and the equivalent ratio is 170%, in our view.”

RBC said the company’s move to selling commercial mortgages and staying clear of UK bulk annuities indicated the Aviva has realised the ratio is not high enough.

The company had also seen growth through acquisition instead of organic growth, and it’s major UK growth engine has been turned off.

“The group appears to have stepped back from bulk annuities in the UK which we see as high growth and high margin while the asset management business will take time to develop a three year performance track record which it needs to drive institutional inflows.”

RBC Capital Markets also reduced the company’s target price from 490p to 460p.

Societe Generale upgraded Daily Mail & General Trust to ‘hold’ from ‘sell’ following the company’s results on Wednesday, saying there is significantly less scope for bad news from here.

“The 5% share price decline yesterday brings the total share price collapse to 30% since January 2014, and underperformance versus European media to -48%,” said SocGen.

The bank said the full year results marked another disappointment for the share price, with guidance for 2016 implying another earnings per share downgrade for consensus.

SocGen cut its FY 2016 EPS estimate by 9% and its 2017 forecast by 7%.

It said the share price collapse was largely justified by a much-needed reality check on the valuation of its stake in Zoopla, which had bolstered the stock 17% in late 2013.

In addition, it pointed to deteriorating trading at Euromoney through FY15.

“With those negatives better reflected in the share price, the poor momentum is better balanced,” said the bank, which kept its 725p price target on the stock unchanged.