Broker tips: Schroders, Asos, BHP Billiton

21st Jan 2016 16:21

(ShareCast News) - Schroders current share price offers an attractive entry point for investors, having dropped said RBC Capital Markets as it upgraded the asset manager to 'outperform'.Setting a price target of 3,100p that offers more than 25% upside, RBC said Schroders had the strongest balance sheet in the sector and ability to offer diversification that was cherished in these uncertain markets.Shcroders has good diversification across channels, with 57% institutional exposure and the rest in intermediary and wealth management; across region, with 41% UK, 21% Europe and Middle East, 25% AsiaPacific and 13% Americas; and across products, with 41% equities, 19% fixed income, 5% alternatives, 25% multiasset and 10% wealth management."Schroders trades at a rare discount to the asset managers peer group on an EV/EBITDA basisand at a slight premium on a cash-adjusted P/E basis," the bank said.Given the asset manager's diversification and financial strength, and with the shares having fallen from above £30 at the end of December to £25 earlier this week, analysts believe the company deserves a premium valuation to the sector."We see Schroders' current valuation as an attractive entry point in the historical context to gain exposure to the stock."Also, the non-voting shares (ticker: SDRC) are also attractive, on a wider-than-average 24% discount to the voters that could outweigh any liquidity concerns, versus an average discount of 21% over the last five years."We believe the current discount is too wide and that investors in the SDRC line could benefit from the discount tightening." Exane painted a doom-laden picture for traditional European clothing retailers in the next few years, as Amazon stands on the cusp of becoming a top-10 clothing retailer in the US with Europe next in its sights.With a nod to George Lucas' interstellar series, Exane entitled its note "Clothing Wars - Amazon: The force awakens" and said the consumer journey is set for another revolution as clothes shopping gravitates further online, with search and social media platforms also looking to muscle in along with the e-commerce giants.Examining the impact on the "disruptors that risk being disrupted" as Amazon's thrust into clothing sales accelerates the structural trend towards on-line, Exane argued that "being an aggregator is no longer enough", success demands something different like a niche or identity.That is seen in Asos and Yoox Net-A-Porter (YNAP) but less so at Zalando, but implications not limited to the online clothing retailers, with "reasons for longer-term caution for both Marks & Spencer and Next".Built as a fashion destination, Asos offers consumers content, advice and inspiration that the likes of Amazon can't match, Exane said, affixing an 'outperform' rating on the London-listed e-retailer."It offers product that others can't match, most notably its crucial own-brand. It is a far broader destination than just a transactional platform. ASOS benefitted when Zalando threw marketing spend into Germany and drove consumer awareness. We expect the same to happen with Amazon."Germany's Zalando, on the other hand, is a transactional platform, targeting the mass-market consumer with a model inspired by US etailer Zappos."With a new competitive threat on the horizon, we fear market share progress could prove tougher and more expensive than experienced to date, weighing on the margin profile of the group."The shares were given an 'underperform' rating.Like Asos, Milan-listed YNAP also looks "relatively well shielded" from disruption, the broker added, but only given a 'neutral' recommendation."After many attempts Amazon does not seem to be pursuing its growth in off-season as aggressively, and the Net-A-Porter offer shares many of the same characteristics as ASOS. Nonetheless, premium valuation and near-term execution risk leave risk/reward looking balanced."However, the implications were not limited to the online clothing retailers, an acceleration of online clothing spend was set to heighten the structural pressures on multi-channel retailers, particularly those with inflexible cost-bases and an absence of self-help drivers.M&S was favoured in the short-term due to its self-help measures and cash returns, over the structural risks, greater online exposure and lower potential for self-help at Next. BHP Billiton will cut its dividend after being mauled by a combination of one-off costs, impairment charges and commodity prices at multi-year lows, UBS predicted on Thursday.On the positive side of the ledger, Wednesday's half-year report showed coal, copper and petroleum production were running ahead of the company's guidance, the broker said, while iron-ore shipments were as expected in the latest quarter.However, the energy and mining outfit announced additional restructuring charges and costs on top of further inventory write-downs and other extraordinary items for a grand total of up to $450m post-tax.If one adds in the fourth quarter results then estimates of 2016 fiscal year earnings came down by 41% to $478m, implying a second half loss.To boot, low commodity prices means cash flow is tight.Therefore, even if operating cash flow "should" cover interest and capital outlays - both for growth and sustaining - "we believe a cut in the FY 16E dividend is warranted and we forecast a 50% cut to 62 centrs per share," analyst Myles Allsop said."BHP reiterated it is committed to protecting its strong balance sheet, which suggests reduced returns for shareholders may be required."Allsop kept his 1,050p target price and 'buy' recommendation on the shares unchanged.