Broker tips: Hargreaves Lansdown, Bellway, Vodafone

RBC Capital Markets downgraded Hargreaves Lansdown to ‘underperform’ from ‘sector perform’ but raised the target price to 1,100p from 1,050p.

It said that while Hargreaves remains a high-quality, well-managed company with an impressive ability to attract net inflows, the stock is now expensive historically and versus its peer group of US-listed platforms.

RBC said that based on its outlook for pricing at Hargreaves and a growth profile that lags US peers, it cannot justify the stock’s current price to earnings multiple. It noted that the stock is trading at 29x expected 2016 earnings.

RBC said it looks as though Hargreaves is making pricing concessions to more clients than it previously thought in order to retain them.

“With exchange traded funds assets under management growing in Europe and competition between platforms increasing in the UK, we believe that Hargreaves’ prices are likely to trend downwards over time,”said RBC.

It added that back in September 2014, management said it expected customers to pay lower fees in 5-10 years’ time.

Citigroup downgraded Bellway to ‘neutral’ from ‘buy’ but raised the target price to 2,540p from 2,160p, saying that the company is making very good progress but the valuation is up with events for now.

“Given the recent strong bounce in the share price (up by +20% over the last month and by around 60% over the last 12 months), along with the rest of the sector, valuation looks less compelling at current levels,” said Citi.

Still, the trading update confirmed the group is progressing well with its strategic objectives of growing volumes at strong margins with a focus on return on capital employed, the broker said.

“We believe that the group is well placed to continue to grow market share and deliver value over the medium term. The balance sheet remains in good shape with a land bank that supports further growth.”

Management has a good track record of delivering a decent return on capital relative to the sector, added Citi.

Bank of America Merrill Lynch (BoA) upgraded Vodafone to ‘neutral’ from ‘underperform’ and raised the price target to 252p from 223p, saying the stock’s valuation, which is in line with peers, supports a more neutral stance.

BoA said downside risks include a slower than expected recovery following disappointing full-year numbers.

It said that FY results confirmed a fragile recovery, with market underperformance in Germany and expectations of a slower recovery across the group until the second half.

It wasn’t all disappointing, though, with Italy and Africa improving and key performance indicators encouraging, said BoA.

However, “midterm, without mergers and acquisitions, we think capex guidance is unsustainable and that consensus expectations of dividend growth could be disappointed,” said Bank of America.