The Expert View: Hargreaves Lansdown, Ophir, Provident Financial
Our daily round-up of analyst recommendations and commentary, featuring Morgan Crucible and Carnival.
Citi downgrades Hargreaves Lansdown to 'sell'
Haley Tam, analyst at Citi, has downgraded funds supermarket Hargreaves Lansdown (HRGV.L) from 'neutral' to 'sell', saying the shares are overvalued in the context of increasing competition and possible disruption from the retail distribution review (RDR).
Tam noted that Hargreaves Lansdown currently has a 15% UK retail net fund flow market share. However, the analyst expects the direct-to-consumer market to become increasingly crowded, putting pressure on this figure and potentially squeezing margins too.
In terms of the January's RDR shake-up, Tam said it'd mean the company will have to implement a new Vantage paid-for business model, which could disrupt new business flows.
Tam also said the market is ignoring some specific costs in the coming year: 'We estimate that the new Sipp "Loyalty Bonus" and falling cash net interest income create a -£10 million (-6.5%) 2013 pre-tax profit headwind, which is not yet fully reflected in consensus forecasts. Longer-term we also see a shift in assets under administration mix towards passive funds as negative for profitability.'
Hargreaves Lansdown features in Citywire A-rated Audrey Ryan's Kames Ethical Equity fund.
Shares in the group were yesterday's biggest FTSE 100 faller, closing at 726.5p, down 32.5p or 4.28%.
Canaccord downgrades Ophir Energy, warns of cash shortfall
Charlie Sharp, analyst at Canaccord, has downgraded Africa-focused oil and gas explorer Ophir Energy (OPHR.L) from 'buy' to 'hold', expecting the company to issue more shares as its cash reserves dry up.
Although Sharp said Ophir's plan for the year ahead features lots of potentially exciting prospects, the cash shortfall is a serious worry. Ophir expects to have $200 million at the end of the year, but its proposed 12-15 well drilling plan for the year ahead will cost about $650 million.
'The company made it clear that it had turned down farm-in offers, which would have provided more than enough funding for the programme, because it did not think that the deals were right,' he said.
'The funding gap is the clear initial market focus. We think that a combination of a slimmer 2013 drilling programme, farm-out, and a (limited) equity issue is the best way forward.' Based on his belief that a share issue looks likely Sharp's target price falls from 661p per share to 561p per share.
Shares in the group closed at 545.5p on Monday, down 5p or 0.91%.
Peel Hunt upgrades Provident Financial to 'buy'
Stuart Duncan, analyst at Peel Hunt, has upgraded personal loan provider Provident Financial (PFG.L) from 'hold' to 'buy' following an encouraging trading update.
The company's Vanquis Bank division, which offers credit cards for those with a poor credit history, continues to see lots of demand, the update said. 'Heavy investment in the customer acquisition programme, particularly in direct mail, has seen customer numbers rise to 834,000 at 30 September 2012, representing year-on-year growth of 26.6%,' it noted.
Duncan said this trend is set to continue. 'Although there has been a modest increase in competition, market conditions for Vanquis remain positive, with continuing strong demand and stable unemployment. The objective of £1 billion of receivables looks easily achievable (2015?) and, even with a reduced margin, we still forecast profits in 2014 of £91.4 million.'
Although the shares have risen over the year, Duncan's new forecasts (2012 and 2013 earnings estimates up 6% and 9%) support his upgrade. His new target price is £15.70, up from £14.90 previously.
Provident features in Citywire A-rated Francis Brooke's Trojan Income fund.
Shares in the group closed at £14.14 on Monday, down 1p or 0.07%.
Investec cuts target price for Morgan Crucible
Michael Blogg, analyst at Investec, has reduced his target price for industrial design and fabrication business Morgan Crucible (MGCR.L) as a result of tough trading conditions in the European market.
Morgan Crucible warned a few weeks back that revenues in the second half of the year are likely to be down 10%, leading full-year results to be 'materially' below previous expectations.
The analyst added that lower sales in high-margin areas such as armour and the high temperature/solar business would amplify the impact on expected earnings.
However, Blogg expects margins to remain in double digits, and he retains his 'buy' recommendation. His target price falls from 320p to 295p.
'We do not expect any loss of competitive edge but the three-year profit-doubling target has been ‘parked’ until market conditions become more conducive,' he concluded.
Carnival features in the Citywire Selection JOHCM UK Equity Income fund, run by Clive Beagles and James Loven, both of whom hold a Citywire A rating.
Shares in the group closed at 245.6p on Monday, up 1.5p or 0.61%.
Shore Capital says 'buy' Carnival
Greg Johnson, analyst at Shore Capital, has reiterated his 'buy' recommendation on cruise-line operator Carnival (CCL.L) on news it is buying two new ships.
Carnival announced the plans on Friday, which will see it take on a 2,660 passenger ship for its Holland America line and a 4,000 passenger ship for Carnival Cruises.
'We have strategically timed the introduction of these new ships to allow ample time for those brands to further grow their passenger base and absorb the new capacity while minimizing revenue yield dilution in the remainder of their existing fleets,' the group's chairman, Micky Arison, said.
The analyst was impressed by this strategic approach to buying new capacity. 'Carnival remains one of our core plays in the travel and leisure sector, where we highlight the potential for improving yield performance from slower capacity growth to lead to a combination of strong underlying earnings growth and significant cash generation,' he said. 'In our view Friday’s announcement underscores this strategy.'
Shares in the group closed at £24.83 on Monday, up 8p or 0.32%.