Broker tips: Provident Financial, Hunting, RSA Insurance
Berenberg hiked its target price for Provident Financial on Tuesday but stuck to a 'hold' recommendation on the shares, warning clients that it was impossible to anticipate the conclusion of the regulator's investigation into the door-step lender.
"We do not think it is possible to usefully forecast the conclusion of the FCA investigation, and it is this variable that will be the key driver of the stock price over the medium term, in our view. We therefore retain our Hold recommendation," analysts Donald Tait and Robert Chantry said in a research note sent to clients.
Furthermore, the broker explained how "the FCA has stated publically its commitment to helping potentially vulnerable borrowers and we think this may have further ramifications for earnings and returns."
The potential for increased regulatory capital requirements as a result of the investigation into Provident's repayment option plan was still a worry as well, potentially curtailing its ability to pay any redress fine.
On a more a positive note, the broker did expect the company home credit unit to recover, albeit not to the same size as before.
Analysts at Canaccord Genuity raised their target price for Hunting's shares following the company's third quarter trading update.
The Canadian broker said it expected the "strong" levels of activity seen over the prior month to extend into October, adding that business was especially strong at the the oilfield services group's Titan unit.
Hence, Canaccord bumped up its full-year 2017 earnings per share estimate from a loss of -$0.03 to a profit of $0.01, with similar-sized upwards revisions made to its estimates for 2018 and 2019.
As a result, its target price for the shares rose from 450p to 520p.
"Outside the guns business, activity in other US onshore drilling focussed businesses (Hunting Specialty) is also reporting strong results. Notably, there is also some strength in the rest of the business, albeit that demand is primarily for US activity [...] We continue to believe that the recovery in the oil industry is taking hold, and current oil prices suggest that there is likely more to go for," analyst Alex Brooks said in a research note sent to clients.
RSA Insurance got a boost on Tuesday as JPMorgan Cazenove upgraded the stock to 'overweight' from 'neutral' as it took a look at the UK non-life sector.
The bank said its clear top pick in the sector is overweight-rated Direct Line, closely followed by RSA and then Hastings. It noted that RSA has underperformed in recent months, meaning the valuation is now attractive.
"We believe the pricing backdrop in commercial lines may improve following recent natural catastrophe events, and with additional capital return likely to commence from FY18E, RSA's income credentials could be meaningfully improved."
With relatively less upside to its valuations, the bank downgraded Admiral to 'neutral' from 'overweight' and Esure to 'underweight' from 'neutral'.
It said Admiral's slower growth in the first half was due to a temporary competitive disadvantage and although this will be removed in January, it nevertheless could continue to weigh on growth in the second half. "With no obvious catalysts on the horizon, and only modest upside to our valuation, we move to neutral."