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Broker tips: Ashmore, Standard Chartered, HSBC, Reckitt Benckiser
Analysts at Canaccord Genuity reiterated their 'buy' rating of emerging markets investment manager Ashmore Group on Tuesday, citing strong net inflows from company's third quarter and increased momentum going forward.
A research note from the analysts highlights that the company recorded its strongest quarter for gross and net flows since June 2013, with net inflows for the three months to 31 March reaching $6.4bn, far outstripping the analysts' projection for $2.5bn.
The research note said: "Reassuringly, the inflows were broad-based in terms of both strategies and investors, including some significant top-ups from a range of existing clients. Local currency and corporate debt saw growth of c.20% and blended debt and equities saw growth of approximately 10% in the quarter."
In the same research note, Canaccord also reiterated its 450p target price for Ashmore Group's shares.
Attractive pricing, US dollar weakness, improved emerging market fundamentals and underweight allocations "should provide a tailwind to flows and performance", the Canadian broker said, even as it cautioned that flows would likely be volatile from quarter to quarter and the company could face an FX headwind to management fees.
"Investment performance on both an absolute and relative basis also remains strong, with Ashmore continuing to outperform benchmarks across most strategies over 1, 3 and 5 years. In addition, volatile markets typically offer mis-pricing opportunities that Ashmore, as a very active manager, should be well placed to take advantage of," said the research note.
Over at JP Morgan, analysts told clients that the recent pullback in shares of Standard Chartered and HSBC, respectively, was an "opportunity to add", reiterating their 'overweight' and 'neutral' recommendations for each one, respectively, with the former also named a 'top pick'.
After meeting with StanChart and three days spent with HSBC's management, the investment bank concluded that the 'risk-reward' in shares of both lenders was "positive", adding that it expected their first quarter numbers to reassure.
"Our view is that there is limited near-term impact on growth trends for these two banks from recent news-flow around trade," they added.
Instead, medium-term profitability was likely to be driven by a combination of higher interest rates in the US and locally, "resilient" asset quality trends with an improvement in credit in some markets and a positive outlook for loan growth across retail and wholesale.
Regarding the stand-off on the international trade front, JP Morgan's 'base case' was for a negotiated agreement with the further internationalisation of the yuan included.
JP Morgan had a target price of 730p on HSBC and of 930p for StanChart.
"While HSBC has a stronger franchise, our view is that StanChart has more upside from recovery given it is more geared to a supportive Asian backdrop."
Analysts at Credit Suisse took a fresh look at consumer goods giant Reckitt Benckiser on Tuesday, downgrading the firm's shares from 'neutral' to 'underperform' based on a new and "in-depth analysis of its top-line growth" over the last two years.
Using Nielsen data to analyse eight category and geography cells representing roughly 40% of Reckitt's developed market sales from its last financial year, the broker was able to present evidence of volume declines which had been offset by higher selling prices, but noted its analysts were particularly concerned about the firm's over the counter consumer health business, highlighting the pressure on the division as a result of fewer science-based innovations and increased competition from generics.
"On the back of our differentiated analysis, we assume RB will have to reset pricing/increase investment to revive developed market volume growth/competitiveness," the analysts wrote in their Ideas Engine report
Besides cutting Reckitt to 'underperform' from its previous 'neutral' stance, CS also reduced its target price to £55.50 per share from £63.00.
Credit Suisse now also expected the group's developed market sales to shrink in 2018, along with a 100 base point reduction in its underlying margins between 2017 and 2019.
"Our FY19E EPS, which we have reduced by 6%, is now 12% below consensus. In our view, last year's debt-funded acquisition of MJN prevented RB from acquiring the much more synergistic Pfizer consumer healthcare business," the analysts concluded.
"We expect management to guide margin expectations lower as we go through the year."