BofA Merrill upgrades St James's Place to 'buy'

Bank of America Merrill Lynch upgraded St James’s Place as it took a look at the insurance sector on Friday, reversing some of its post-Brexit conservatism in the wake of a significant rise in bond yields.

It upped St James to ‘buy’ from ‘neutral’ and lifted the price target to 1,090p from 1,070p. It said SJP is a high-quality company which has slightly underperformed the UK asset management space in USD terms following the Brexit vote despite positive results over that period.

“We think that consensus cash generation forecasts fail to allow for FX tailwinds, positive equity markets and strong operating performance in recent quarters.

“We believe we sit 5-8% ahead of consensus for underlying cash generation. Despite potential bumps along the road as the terms of Brexit become clear, we think this is a particularly attractive entry point for a high quality compounder.”

The bank kept Prudential at ‘buy’ but upgraded the price target to 1,830p from 1,170p. It noted comforting messages at this week’s capital markets day on strategy and risk management, good news from a trading perspective and a higher-than-expected solvency surplus.

Merrill kept its stance on RSA Insurance at ‘buy’ with an unchanged 585p price target.

It argued that RSA continues to deliver at least on track versus its targets and continues to gain traction with investors.

“We think the ‘realistic blue sky scenario’ of 55p of earnings by 2018 is now more achievable thanks to the FX tailwind; meanwhile, consensus is still 10%+ below this.”

At 1015 GMT, St James’s Place shares were up 1.3% to 958.50p, RSA was down 0.6% to 521p and Prudential was 1.3% higher at 1,540p.