Broker tips: Genus, RSA, Experian

Numis placed its rating and target price on Genus ‘under review’ on Thursday, after the animal genetics company reported its full year results.

Genus posted a 7% increase in adjusted pre-tax profit to £49.7m, driven by strong performances in Genus PIC and Genus Asia, particularly China.

However, revenue at the group was down 3% to £388.3m on the back of lower bovine volumes in tough dairy markets and lower porcine by-product and up-front sales. It missed the Factset consensus forecast for revenue of £397.4m.

Chief executive Karim Bitar said the group expects to increase research and development in 2017. Overall Bitar sees the company performing in line with market expectations as reported numbers benefit from favourable exchange rates.

Numis has put the stock ‘under review’ from a previous rating of ‘hold’.

“In summary, investment in R&D continues, which is expected to limit near term underlying earnings growth but deliver strategic value in the medium to long term,” the broker said.

HSBC upgraded RSA Insurance to ‘buy’ from ‘hold’ and raised the price target to 595p from 520p despite the strong share price performance.

The bank noted RSA shares are up 19% year-to-date, outperforming the FTSE 100 index and the DJ Stoxx Insurance index by 9% and 36%, respectively.

“We upgrade the shares given we see more scope for management actions around the legacy portfolio, debt restructuring, cost savings and a further improvement in attritional loss ratios.”

“The capital position is comfortable while there is more scope for EPS upgrades if the management team achieves its 2018 ambitions, increases cost targets or restructures debt further.”

HSBC downgraded Hastings to ‘reduce’ from ‘hold’ and upped the price target to 193p from 185p.

It said while the company remains a beneficiary of rate increases in the UK motor insurance segment and is well-placed to achieve its IPO targets, it is concerned about consensus earnings estimates.

In addition, it said the stock screens expensive trading at 15% above its new target price.

The bank kept Admiral at ‘hold’ given the lack of upside and as it awaits more disclosure on the company’s UK home segment.

It retained Direct Line at ‘reduce’, pointing to declining earnings during 2015-18 despite the group being a beneficiary of rate increases in the UK motor segment.

HSBC held Esure at ‘buy’ saying it has a comfortable capital position and should experience around 17% compound annual growth rate in 2015-18 operating earnings.

Goldman Sachs upgraded Experian to ‘buy’ from ‘neutral’ and lifted the price target to 1,845p from 1,452p saying it now sees around 20% upside to the stock.

The bank expects Experian’s organic growth rate to accelerate moderately from 4.6% in 2016 to 4.8% in 2017 and 5.2% in 2018 on the back of strong delivery in North America and easier comps in Brazil.

This should be combined with gradually improving EBITA margins as new businesses mature and expand margins, while the high-margin Brazil operation is expected to gradually recover, GS said.

Goldman said it would expect the stabilisation of the Brazilian economic outlook to act as a positive catalyst. Its economists forecast Brazilian GDP to accelerate to +2.2% by the fourth quarter of next year from -3.8% in the second quarter of 2016.

“We expect improving sentiment on growing recognition that the growth in US credit services could be much more secular, rather than cyclical, as growth is driven by particular verticals that benefit from secular, rather than cyclical, expansion (eg healthcare).

“We would expect Experian to carry out further M&A, as it has done in the past, to strengthen and complement its existing offering, with acquisitions potentially also offering scope for cross selling.”