Broker tips: Moneysupermarket.com, Pearson, Anglo American

Shares in Moneysupermarket.com have surged after Jefferies upgraded the stock from ‘hold’ to ‘buy’.

The investment bank issued a note on Wednesday, saying it had been too cautious this year and the company had performed well.

“It is one of the few online marketplace models we have not wholeheartedly gotten behind.”

It also highlights that consensus expectations for the company ate modest, with year-on-year revenue growth forecast for 7% in 2016 and 2017.

Jefferies also noted that the company has only recently taken on the 'data driven insight' mantra.

“The upside from leveraging data to provide business intelligence is real, specifically to enhance customer acquisition and to inform the development of value add customer proposition.

“The ramped capex is positive and whilst the jury remains out in terms of execution ability, the H115 performance was robust.”

With a desire to invest for growth, it upgraded the stock and revised its price target from 263p to 440p.

Education publisher Pearson was on the back foot on Wednesday after Deutsche Bank cut its price target on the stock to 770p from 950p.

It said Pearson is trading on 13x price-to-earnings 2016E and 15x price to free cash flow , which could appear low compared to peers, but Pearson is experiencing organic revenue decline and has not grown more than 1% since 2010.

“With risk of further weak trading in college, low adoption year in school books and the possibility of a significant round of restructuring in 2016, we retain our sell,” said DB.

The bank said Pearson’s problems are structural, with cyclical pressures exacerbating them.

The challenges are most acute in US College, which accounts for around 35% profits, and where a reduction in margin to the level of the school business would negatively impact profits by 15%.

Over time, DB reckons the education market is becoming more competitive, as the old print-based oligopolies are challenged by free content and new entrants.

In addition, a downgrade to full year guidance by US peer John Wiley & Sons also weighed on the stock.

John Wiley fell more than 10% after its second-quarter results. The publisher said revenue dropped 9%, pushing net income down by 19%.

Shares in miner Anglo American skidded for the second day in a row after it said on Tuesday that it plans to scrap its dividend for this year and the next and axe jobs amid a “radical” portfolio restructuring to combat falling commodity prices.

Jefferies downgraded its stance on the stock to ‘underperform’ from ‘hold’ and took an axe to the target price , chopping it to 275p from 635p.

It said aggressive portfolio management, opex and capex reductions and the suspension of the dividend were all steps in the right direction.

“However, the downside risk to commodity prices is still significant, and further action, including an equity issuance, may still be necessary in 2016. Despite the recent selloff, we downgrade.”

Societe Generale said investor sentiment is unlikely to reverse anytime soon and barring a sector rally, at this stage there is likely more downside risk than upside to the shares.

The bank said that if an equity issuance is the ultimate choice, waiting any longer would mean more dilution.

“Management also needs to be mindful that at current market capitalisation ($6.2bn), AA is likely to be on the radar of companies looking for good assets overshadowed by distressed balance sheets,” it added.

Meanwhile, JPMorgan Cazenove said the measures announced do not go far enough to challenge its fundamentally bearish view on the stock.

“Specifically, in the absence of higher commodity prices, a significant reduction in net debt from around $13bn at YE’15 (34% gearing) will only be achieved by a more aggressive expansion of disposal candidates,” it said.

Credit Suisse said that without a more structural shift in the portfolio, the balance sheet and cash flow concerns will persist.

“In our view the company has a 12 month window to execute on sales and improve cash flows; otherwise pressure on debt levels and raising equity will increase further,” it said.

Citigroup said the measures announced were largely in line with market expectations, but a bit too late and “seemed like a reactionary measure rather than proactive”.