Broker tips: Standard Life Aberdeen, Next

Analysts at JP Morgan upgraded their recommendation for shares of Standard Life Aberdeen from 'neutral' to 'overweight' after analysing the various avenues at the new chief executive officer's disposal to close the valuation gap versus rivals.

Amongst those areas for potential improvement, the investment bank noted a possible reduction in the dividend payout, given that the insurer's was the highest in the top flight index and improved disclosure and efficiency in its Platforms and Wealth business.

Non-organic growth was another possible path, JP Morgan said, arguing that Standard Life could reinvest surplus capital from the sale of HDFC Life to accelerate growth at its Aberdeen Standard Investments unit via acquisitions.

Indeed, the then current share price for Standard Life implied a price-to-earnings multiple of just five for ASI, versus the European Asset Management sector on 12 times' earnings.

"Hence we see opportunities to close this gap."

Even after lowering their estimates for the firm's dividend yield to in financial years 2020/21, that still left the shares sporting a roughly 7% yield, JP Morgan pointed out, in comparison to 3.5% for FTSE 100 constituents on average.

JP Morgan also nudged up its estimates for earnings per share in 2020-21 by 2% and 1%, respectively.

All told, the target price was raised from 255.0p to 270.0p.

Berenberg downgraded Next to ‘sell’ from ‘hold’ on Tuesday as it took a look at the retail sector.

The bank, which lifted its price target on Next to 4,500p from 4,300p, said the company has a best-in-class management team. However, it also thinks the Covid-19 pandemic has intensified structural pressures and said these do not appear to be captured in the current valuation, with the share price currently above that of summer 2019.

"In particular, we expect the ongoing channel shift to put pressure on the retail division’s like-for-like sales and margins," Berenberg said. "While we think there is an opportunity for its label business to take market share, we also believe the attractiveness of Next’s delivery and returns proposition is diminishing, given prevailing footfall trends.

"Its credit customers may, furthermore, have a lower appetite for debt due to the greater systemic risk of a post-Covid-19 world."

On the sector overall, Berenberg said the pandemic should result in a sustainable step-change in online penetration, which helps to underpin Asos and Global Fashion Group as its top picks.