Broker tips: Jupiter Fund Management, Legal & General, M&G, Diageo

Analysts at Canaccord Genuity downgraded fund manager Jupiter Fund Management from 'buy' to 'hold' on Tuesday, stating upside was "limited" after the group's recent re-rating.

Canaccord Genuity said the asset managers' peer group had "re-rated meaningfully" since the beginning of the fourth quarter of 2022, helped by higher market levels, with average share prices up 36%.

The Canadian bank highlighted that Jupiter had outperformed over that period, with the share price 58% higher.

"The company will report FY22 results on 24th February, when we expect further clarity to be provided on the cost outlook for FY23, following the update provided in October by the new CEO which confirmed a circa 15% headcount reduction," said Canaccord, which expects to see that "a positive surprise" on costs and/or net flows will be required to drive a further re-rating.

Hence, it believes further upside to be limited in the short term following the strong share price run but still hiked its target price from 106.0p to 142.0p.

Analysts at Berenberg downgraded insurers Legal & General and M&G from 'buy' to 'hold' on Tuesday, citing high correlation to credit and the UK economy, as well as a lack of organic growth in the latter's asset-management business.

Berenberg thinks Legal & General is "a fantastic business" and arguably the most exposed to the positive trends in bulk purchase annuity. However, it highlighted that the stock's high correlation to credit and the UK economy could cause it to underperform.

"Our analysis shows that, unless credit spreads are below 50 basis points, L&G's share price will not rise above 300.0p," said the German bank, which cut its target price on the stock from 345.0p to 290.0p.

As far as M&G goes, Berenberg said the group offers "an attractive yield" of 9.3% and stated there will undoubtedly be debate about whether the company can launch another share buyback.

However, without organic growth in its asset-management business, Berenberg reckons management commentary on dividend growth will remain "cautious" and, as such, the stock will struggle to rerate, leading it to cut its PT on the stock from 260.0p to 218.0p.

Investec upgraded Diageo on Tuesday to 'buy' from 'hold' on valuation grounds, following its recent share price decline.

It noted that Diageo was the largest spirits company in the world by sales and the third largest by market cap and also probably the most diversified spirits company across geographies and categories.

In spite of this, it currently trades at a discount to all major spirits companies except Pernod, noted the analysts.

"After incorporating the interim results and applying the latest FX rates, we nudge up FY23E adjusted earnings per share by 1% and nudge down FY24E by 1%," Investec said.

Investec highlighted that Diageo management left FY23 and medium-term guidance unchanged, stating a US slowdown in the first half was temporary, driven by tough comps and not by any worrying consumer trends.

"The interim dividend per share up 5% and a new £0.5bn buyback underscore its confidence," concluded Investec, which left its price target on Diageo unchanged at 3,900.0p.