Broker snap: Credit Suisse ups targets for most diversified financials

20th Jan 2014 12:55

Credit Suisse on Monday raised its price targets for a broad swathe of the European Diversified Financials sector, benefiting several UK managers in the process, albeit not all. The main reason for its changes was the fact that the sector is the most sensitive to rising 10-year US Treasury yields. The bank's Global Equity Strategy team was forecasting that they would rise to 3.5 per cent by year-end, versus 2.82 per cent at the end of trading on January 17th. Due in part to the aforementioned rise in yield, they believed that inflows into equities would continue to outpace those into fixed income. Interim Management Statements (IMSs) to date had revealed EM/Asia-based asset managers were seeing further flow pressures versus those exposed to developed markets. Furthermore, European equities were witnessing the strongest three-month rolling net inflows and assets under management, they pointed out. That was deemed a positive for Schroders and Henderson, for example, they pointed out. Nevertheless, last year the asset management sector already re-rated back to its long-run average forward (2014) price-to-earnings (PE) multiple of 15, by rising close to 40%. That 20% re-rating came despite modest earnings per share upgrades of about 8% from the companies within the sector. Given that Credit Suisse only expected another 6% rise in the S&P 500 in 2014 a further re-rating - while possible - hinged on further earnings momentum, they said. The exchanges also saw a re-rating in their valuations in 2013. The positive surprise for them this year might come from a pick-up in primary market activity, the broker added - where the LSE is particularly strong. Credit Suisse on Monday raised its price targets on Hargreaves Lansdown (to 1,470p from 790p), ICAP (to 415p from 350p), Jupiter Fund Management (to 375p from 345p), the LSE (to 2,000p from 1,780p) and Schroders (to 2,810p from 2,550p). The Swiss broker lowered its targets on Ashmore (to 375p from 410p) and Aberdeen Asset Management (to 470p from 515p). It also upped its view on shares of Hargreaves Lansdown to 'neutral' from 'underpeform'. For this last stock the Swiss broker's decision was based on its "greater certainty" about Hargreaves' ability to offset lower margins with increased net inflows, given the competitiveness of its new pricing model. AB