Broker tips: Beazley, Future, Rolls-Royce, Wise

by | Aug 17, 2021

UBS downgraded its stance on Beazley shares on Tuesday as it took a look at the European insurance sector.
Beazley was cut to ‘sell’ from ‘neutral’ after a 15% jump in the share price following results, but the price target was unchanged at 382.0p. UBS said the company’s exposure to at-risk lines and low capital flexibility concerns remain.

UBS said second-quarter/first-half results in the European insurance sector were “robust”, beating estimates by 47% on average.

“But heightened July catastrophe losses/increased Covid mortality losses result in reinsurers FY21E EPS downgrades, mixed forward EPS changes,” it said. “Given hurricane season timing, and with budgets already expected to be fully consumed by YE, timing is not right to be bullish the sub-sector.”

Analysts at Deutsche Bank raised their target price on media firm Future from 3,802.0p to 4,138.0p on Tuesday following the group’s £292.0m acquisition of Dennis Publishing.

Deutsche Bank said the acquisition brought a subscription-based US-focused, fast-growing magazine business to Future, a fit that the analysts believe “looks good”.

While it is paying a premium valuation, DB stated this was justified by a higher quality of earnings, and material potential synergies which will bring the valuation down.

In addition, the German bank highlighted that while the deal was entirely debt funded, given the speed of deleverage, it still had “plenty of scope” for additional bolt-on deals.

JPMorgan Cazenove upped its price target on engine maker Rolls-Royce to 130.0p from 105.0p on Tuesday, as it argued the shares could outperform on the back of higher consensus earnings per share estimates in the next few months, and the potential for the ITP disposal to be announced.

With its first-half results, Roll-Royce reported ITP as a discontinued operation. “This suggests RR has confidence in completing the disposal,” JPM said.

“We also note a number of other M&A transactions in the sector have recently been announced, at large premiums. Thus we would not be surprised if the ITP disposal is confirmed soon, at a price higher than many expect.”

The bank said it’s assuming a disposal price of £1.4bn, but a higher price is possible.

Nevertheless, JPM – which kept its rating at ‘neutral’ – has concerns over structural challenges facing the company’s Civil Aero business and its Power Systems business, as well as the group’s capital structure.

Barclays initiated coverage of newly-listed money transfer app Wise on Tuesday with an ‘equalweight’ rating and 895.0p price target.

“To say that Wise is disrupting the market for consumer and SMB foreign exchange transactions would be an understatement; over its ten-year history, the company has seen extraordinary growth and now has a run-rate transaction volume of more than £62bn,” it said.

Barclays said Wise’s financial profile reflects a combination of rapid volume growth and cost-effective customer acquisition.

It noted that over the past two years, revenue has grown at a 54% compound annual growth rate, and, unlike many fintechs at this stage of growth, Wise has been profitable since FY17.

That said, however, Barclays argued that the current valuation of around £10.0bn already reflects outstanding multi-year performance, hence the equalweight rating.

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