Broker tips: William Hill, RELX, Ashmore Group
William Hill’s shares fell on Friday as Canaccord Genuity reiterated a ‘hold’ rating and cut its target price to 301p from 340p.
The betting group has warned about a poor results from horse racing at Cheltenham, tighter regulation, and teething problems with its strategy of taking more technology in-house, Canaccord noted.
In March, William Hill said it expected operating profit for this year to fall to between £260m and £280m, from £291m last year.
“And now the Brexit vote looks likely to have some impact on consumer confidence, driving further downgrades in Retail,” said Canaccord’s Simon Davies.
Davies said William Hill’s retail offer has improved while the UEFA Euro 2016 will give first half profits a boost. However, he said the technology challenges in its online offering and poor summer weather will not have helped.
“…Online should remain relatively resilient (if it can resolve ongoing technology challenges), but while Australia will benefit from the weaker pound, it faces its own intensifying regulatory challenges which continue to dampen growth. Overall, it looks set for a second consecutive year of double-digit Earnings declines.”
Canaccord has reduced its 2016 earnings before interest, tax, appreciation and amortisation (EBITDA) forecast from £272.3m to £259.6m, driving pre-tax profit down from £236.2m to £223.4m and earnings per share (EPS) down to 22.5p from 21.3p,
The 2017 estimate for pre-tax profit and EPS was also cut to £233.4m from £249.6m and 23.2p from 24.8p.
“It reports interim results on 5 August, and we project flat revenues (£803.1m) and EBITA down 19% to £125.4m,” Davies said.
Asset manager Ashmore got a boost on Friday as Goldman Sachs upgraded its stance on the stock to ‘buy’ from ‘neutral’ and raised the price target to 420p from 310p.
The bank cited four main reasons for the upgrade: improving industry flow trends, strong fund performance, lower exposure to UK investors and positive FX tailwind.
It said investor demand for emerging market debt has strengthened this year, with last week’s flow into Hard Currency Debt the largest since March 2015.
“Our economists also see potential for EM countries to lower interest rates from current levels, suggesting the supportive macroeconomic backdrop may continue for some time.”
It pointed out that Ashmore’s hard currency and local currency strategies have reported strong performances relative to peers over three and five years. “We believe this will help the group to benefit from the acceleration of flows into EM debt funds that we expect.”
GS also noted that less than 10% of Ashmore’s assets under management are sourced from UK investors, which it reckons will insulate the group from the slowdown in UK fundraising it expects in the near term. It said two-thirds of assets are sourced from Asia, the US or Middle East.
Finally, it said around 60% of Ashmore’s AUM is held in assets denominated in US dollars.
“With much of the group’s costs denominated in GBP, we expect the recent depreciation in sterling to drive a strong translational P&L benefit for the group. In addition, given the depreciation, we expect Ashmore to report material one-off gains on its balance sheet cash and seed capital holdings.”
UBS initiated its coverage of RELX Group on Friday with a ‘buy’ rating and a 1,600p price target.
“Having conducted a deep-dive analysis of the group, our valuation implies a 17% total shareholder return (including buybacks),” the bank said.
“A shift to recurring electronic revenues backed by unique datasets should enable it to leverage a fixed cost based with limited inflation, driving earnings before interest and tax (EBIT) growth. “
UBS said a high free cash flow conversion should also facilitate the information and analytics in mergers and acquisitions and capital management to enhance shareholder returns.
The banks sees additional upside potential if sterling continues to depreciate, with just 8% of revenues GBP-denominated.
“Proprietary research underpins our view that RELX can deliver 7% underlying fiscal year 2016-2018 earnings per share compound annual growth rate, enhanced to 12% CAGR by a weak GBP.”
Asset manager Ashmore got a boost on Friday as Goldman Sachs upgraded its stance on the stock to ‘buy’ from ‘neutral’ and raised the price target to 420p from 310p.
The bank cited four main reasons for the upgrade: improving industry flow trends, strong fund performance, lower exposure to UK investors and positive FX tailwind.
It said investor demand for emerging market debt has strengthened this year, with last week’s flow into Hard Currency Debt the largest since March 2015.
“Our economists also see potential for EM countries to lower interest rates from current levels, suggesting the supportive macroeconomic backdrop may continue for some time.”
It pointed out that Ashmore’s hard currency and local currency strategies have reported strong performances relative to peers over three and five years. “We believe this will help the group to benefit from the acceleration of flows into EM debt funds that we expect.”
GS also noted that less than 10% of Ashmore’s assets under management are sourced from UK investors, which it reckons will insulate the group from the slowdown in UK fundraising it expects in the near term. It said two-thirds of assets are sourced from Asia, the US or Middle East.
Finally, it said around 60% of Ashmore’s AUM is held in assets denominated in US dollars.
“With much of the group’s costs denominated in GBP, we expect the recent depreciation in sterling to drive a strong translational P&L benefit for the group. In addition, given the depreciation, we expect Ashmore to report material one-off gains on its balance sheet cash and seed capital holdings.”