Broker tips: Prudential, TalkTalk, Foxtons

3rd Feb 2016 12:40

(ShareCast News) - Barclays and UBS have played down reports that Prudential would be hit by a clampdown on Hong Kong sales of insurance products from mainland China, which sent the shares tumbling 8% on Tuesday. A report from Bloomberg said China's foreign exchange regulator was tightening restrictions on purchases of insurance products overseas to stem money outflows from China, limiting overseas transactions on UnionPay debit and credit cards to $5,000 per transaction.Prudential's mainland China sales are mostly regular premium and therefore are unlikely to be materially caught by this change, UBS said. Barclays said they believe "the concerns are misplaced", with 96% of sales to mainland Chinese residents in Hong Kong expected to be well below the cap and Hong Kong representing only 10% of Asian and 3% of group earnings."Furthermore, even in the worst case scenario, where insurance products sales in HK to mainland Chinese residents are completely banned, we anticipate Asia new business sales to recover by 2018."More importantly, the change is unlikely to have a material impact on Prudential's Asian or group earnings, according to a recent presentation from the company that showed that the drivers of earnings from Hong Kong emerge over time as bonuses are paid on its with profits fund, and even if sales were zero, earnings would still grow over the next 10 years."We estimate that in the worst case scenario where Hong Kong Chinese mainland sales declined to zero, our 2016 operating profit from Hong Kong would be flat at worst, reducing our group earnings estimate would decline by £50m or 1%." Exane BNP Paribas has upgraded TalkTalk from 'neutral' to 'outperform' on the company's weak share price, however Goldman Sachs downgraded the company from 'buy' to 'neutral'.The FTSE 250 telecoms provider's value plunged late in 2015 after a serious cyber-attack saw the company suspend sales to new customers for a short time and see significant damage to its brand value.It said yesterday that the cyber-attack had a trading impact of £15m, and created exceptional costs of £40m-£45m, as well as estimating that 95,000 customers left due to the attack.Exane BNP Paribas on Wednesday said the spin and lack of confidence in guidance made the investment bank cautious initially."However, with the stock below 250p it offers a far more compelling risk/reward."The bank said while the hack had an impact on third quarter results, the fourth quarter is looking to have stabilised."Our proprietary survey of 500 UK consumers shows that TalkTalk customers value price over anything else."They believe that TalkTalk offers by far the cheapest price with a quality of service that is comparable to the big brands."While Exane BNP Paribas cut its short term forecasts, they have been compensated by a more positive view in the medium term."We conclude that while TalkTalk remains an opaque situation (more so since the cyber-attack) the risk reward in the shares is compelling."It increased its target price from 260p to 315p.However not everyone was as optimistic, with Goldman Sachs downgrading the company and removing it from its Pan-Europe Buy List.It said it believed there is an increased structural uncertainty on TalkTalk's ability to grow long-term earnings, only partly due to the recent cyber-attack."We continue to forecast top-line growth compounding efficiency gains, but our less positive view on price rises in UK triple-play and Talk's potentially weaker price position lead to lower long-term revenue growth forecasts (1%-3% from 2%-4% 2016-20E)."Goldman Sachs said the company's valuation is less compelling on its lower estimates, and it dropped its price target from 312p to 271p. Shares in Foxtons gained as Canaccord Genuity reiterated its 'buy' rating after the UK real estate group reported a solid year of revenue growth.A trading update from the group, which dropped out of the FTSE 250 in December, revealed that revenue rose 4% to £150 on a 4% increase in volumes and 32% sales growth from mortgage broker Alexander Hall. It came despite an 11% decline in property transactions in its London heartland in 2015.The final and further special dividend will total 6.23p per share, bringing the full year dividend to 11.0p per share, an increase of 13.4% on 2014.Foxtons added that the sales pipeline for 2016 was "encouraging".Canaccord said that while the outlook was positive, the future of the residential property market was uncertain with the prospects of an increase in interest rates and higher stamp duty for buy-to-let investors in April."We are mindful that house price growth, according to the Land Registry, in London remains high (annual change of 12.4% over the last twelve months) but that a shortage of properties available for sale will curtail the activities of agents," said analyst James Ash."However, as Foxtons expands to the outer regions with higher transaction numbers, we believe it should continue to outperform its central London peers."The broker cut its price target to 220p from 264p.