Jefferies has cut its rating on Hargreaves Lansdown (HL) and upgraded Standard Aberdeen in a review of the asset management, broker and exchanges industries.
With shares in HL trading 24p shy of their 52-week high at around £18.00, the broker believes there is better value to be found elsewhere in the sector.
Jefferies noted that HL’s full-year results in August showed that the number of UK investors who claim to manage their own affairs has increased from 29% in 2013 to 44%, which has given the firm an opportunity to address a wider market opportunity.
This though will require some investment, Jefferies pointed out.
'The company now needs to deliver on the opportunity, which will require “effective investment in technology” and improved digital marketing and client segmentation,’ it said in its note.
It added: ‘The company reports its interims in early February, but at this point its recent price moves cause us to move to an underperform rating.’
Value concerns also prompted Jefferies to downgrade Jupiter to hold, with the fund firm’s share price trading around 12p below its year-high of 634.6p.
This comes after Jupiter reported an ‘impressive’ £1.34 billion inflow in the third quarter. ‘Q3 net flows remained strong [but] share price strength eats value’, Jefferies said.
Meanwhile, Jefferies is more upbeat on Standard Life Aberdeen, upgrading the stock to buy.
This follows the mega-merger last year between Standard Life and Aberdeen Asset Management, with the broker believing the combination of underlying value between the two fund giants making it a ‘clear value play in the sector’.
But this does not mean Standard Life Aberdeen is without challenges. ‘The company does, however, need to demonstrate that it can generate improving net flows in its ‘growth’ channels after a below par net flow performance in 2017,’ Jefferies highlighted.
Schroders remains one of Jefferies’ favourites picks in the sector, with the group’s better than forecast first half inflow of £2.7 billion justifying its buy rating on the stock.
Jefferies came out of a Schroders investor day in October bullish over the firm’s prospects for 2018.
‘We believe [the investor day] emphasised the diversity of inflows by geography and asset class,’ the broker said.
‘The company can clearly point to a number of growth opportunities globally as well as the benefits of increasing client longevity, both of which require investment in technology.’
However, specialist asset management firm Intermediate Capital Group (ICP) remains Jefferies' preferred play in the sector.
This follows strong interims from the firm in November, in which it reported a record fund-raising for its fund range, including its senior debt strategy.
'This, combined with a reduction in the group tax charge, led us to increase our [estimated] 2019 earnings per share by 11%. We also
increased our [estimated] 2019 dividend by 20%,' Jefferies said.