Broker tips: Rightmove, AJ Bell, JTC

HSBC upgraded Rightmove on Tuesday to ‘buy’ from ‘hold’ and lifted the price target to 645p from 530p as it said some of the early demand indicators show return of buyers’ interest and argued that positive sentiment from agents is not priced into current multiples for the stock.

The bank noted that data from the UK housing market is showing early signs that the demand underhang may be starting to close.

"Some of these early indicators of demand, including new buyer enquiries, new instructions and sales agreed, are edging towards more-normal 2019 levels," HSBC said.

"According to Zoopla, demand levels are 16% higher compared to 2019 and Rightmove data shows sales agreed in March were similar to 2019 levels. Although it’s too early to tell if the demand is sustainable and whether the demand from first time buyers will trigger a chain reaction, creating a ripple effect, the activity levels are in a better shape than at the end of 2022."

HSBC said it reckons 2023 "will test Rightmove’s moats" and its ability to balance wage inflation at a time when there is pressure on agents’ marketing budgets.

"Historically, Rightmove has shown a disciplined approach with a rejigging of the product structure every 18-24 months, with its last major update of Optimiser 20 (from Optimiser 15) in Q4 2019. Now that all of the estate agents have upgraded to Optimiser 20, we believe the potential for a new product in late 2023 or early 2024 is entirely plausible and could support ARPA growth next year.

"However, closure of low-stock agents will be a risk to watch out for as we progress though the year."

Berenberg hiked its price target on AJ Bell to 370p from 300p, as it said resilient flows continue.

The bank noted that shares in the company rose around 3% on the day of its second-quarter trading update on 20 April.

"The business’s client assets grew during the quarter, with assets under administration (AuA) reaching circa £74bn," it said.

"AJ Bell also continues to generate resilient levels of net inflows across both its adviser and D2C (direct to consumer) platform businesses, despite an uncertain market environment.

"On the back of the recent results, we refresh our forecasts and expect the business to continue to deliver top-line growth and a high operating margin."

Berenberg maintained its ‘hold’ rating on the shares, pointing out that AJ Bell trades at a premium to platform peers.

Shore Capital downgraded JTC to ‘hold’ from ‘buy’ as it lifted its fair value to 840p from 825p.

The broker said that after nudging forecasts higher, it sees only modest upside to its revised fair value following JTC’s valuation recovery.

"We like JTC for revenue visibility, earnings growth, its opportunity to compound, and its high rate of cash conversion, however, with insufficient upside to our fair value, we reduce our stance to hold," it said.

"Potential upside to our return on invested capital and fair value estimates could come from: (i) shareholder value additive M&A, (ii) cost efficiencies including the application of technology to streamline processes, (iii) cross-selling via the new Commercial Office, (iv) a pick-up in the formation of new funds."

ShoreCap said that even if new business activity levels have slowed due to the uncertain macro, demand for JTC’s services should remain relatively resilient as clients continue outsourcing to rationalise costs. It also noted that JTC continues to build market share.

"Organically, the focus here is on longevity of client relationships, which makes strategic sense even if it costs margin upside in the near term if price increases are moderated. Inorganically, after focusing on integration and deleveraging over the past year, activity should resume this year," Shore said.

JTC is a provider of fund administration services.