Broker tips: Hargreaves Lansdown, Sage, Kape Technologies

RBC said Hargreaves Lansdown was a quality business with a customer base, brand and return profile that was under-appreciated by the market.

"However, with the business facing a period of elevated uncertainty on a number of fronts, including the possibility of a further slow-down in flows amid the changing macro environment, we consider the shares to be lacking catalysts in the near term and downgrade to sector perform," it said.

Analysts at Canaccord Genuity revised their target price on software designer Sage from 875.0p to 915.0p on Thursday after the company guided towards an acceleration in recurring revenues to over 9% for the current year.

Canaccord Genuity said the company's track record meant that one could "reasonably" expect net revenue retention to remain at around 100. Even without much additional customer growth, and assuming "a couple of extra points of churn" to reflect insolvencies among small and medium-sized enterprises, the analysts said Sage had "pretty good" visibility.

"The bottom line is unless Sage's key markets in Western Europe and the US see a prolonged severe recession, our new revenue forecasts seem well underpinned," the analysts said.

Canaccord, which reiterated its 'buy' rating on the stock, added that margin expansion should drive double-digit earnings per share growth, they said.

Analysts at Berenberg lowered their target price on cybersecurity firm Kape Technologies from 410.0p to 270.0p on Thursday, stating it still had concerns about the stock.

Berenberg said that due to concerns regarding churn and cash conversion, it initiated coverage on Kape with a 'hold' rating back in October 2021. However, the stock has fallen by roughly 35% since then, and with some "green shoots" in Kape's interim results and the stock looking "optically cheap", with upcoming accretive M&A using cash already raised, the analysts now think the shares could do well in the near term.

"Nevertheless, fundamentally our concerns on Kape remain, and we prefer to wait for a clean set of results in FY 2023 (without major acquisitions) to be sure that the improved cash conversion is not a one-off boost on account of the ExpressVPN acquisition," cautioned Berenberg.

The German bank also noted that Kape had just raised approximately $220.0m of new equity at 265.0p for more acquisitions, after having raised $354.0m in September 2021 at roughly 340.0p, meaning that there will be another acquisition soon and there will not be "a clean set of results" next year to gain confidence in the group's existing businesses, unless it improves its disclosures and reporting method.

"We think shares could trade positively, especially if Kape beats market expectations and announces an accretive acquisition. However, we are not yet convinced that the improved cash conversion is sustainable, and we still do not think Kape’s amortisation policy with regards to its capitalised sales and marketing dollars is comparable to peers. Therefore, on a comparable basis to peers, Kape is not as cheap as it appears – we think it trades at a circa 35% premium to the reported valuation below," said Berenberg.