Broker tips: Sky, WPP, Standard Life Aberdeen
16-02-2018 16:28
Bernstein upgraded Standard Life Aberdeen to 'outperform' from 'market perform' following the selloff in the previous session and on the back of year-to-date weakness in the stock, but cut its price target to 430p from 460p.
The company said on Thursday that it could lose £109bn of Scottish Widows and Lloyds Banking Group assets under management, prompting a big drop in the share price which Bernstein called an overreaction.
Ahead of full year results on 23 February, Bernstein think that "if the rest of the business looks OK, and management provides investors comfort that it could shed some cost related to SW assets, the shares could get back on track after this sharp selloff".
Analysts said that while it's not a given that Scottish Widows and Lloyds will terminate the agreement, it is likely, so the loss of assets under management and the related estimated earnings impact has been reflected in the Bernstein model. Analysts also took the opportunity to mark-to-market for moves in asset prices and in the valuation of HDFC Life, with the net result being a reduction in the price target.
Even in its most punitive scenario, in which SLA loses all of the Scottish Widows revenue but is unable to shed of the related costs, Bernstein still sees 16% upside. In its base case - in which SLA can shed costs over three years equal to half the revenue associated with Scottish Widows assets - it sees 19% upside.
Sky has effectively de-risked the threat of key sports broadcasting rights losses in the UK and Germany since the start of last year with renewals of both Premier League and Bundesliga rights, but analysts at RBC Capital Markets downgraded the stock on valuation ground.
However, RBC said that after the renewal of the FA Premier League rights, Sky was trading in line with US giant Fox's takeover offer, meaning Fox would likely bump its offer in order to get approval at the upcoming EGM, should regulatory clearance be given, leading RBC to raise its price target to 1,150p from 1,075p.
RBC said Fox's current takeover offer was no longer quite so attractive to Sky.
"Fox has reserved the right to convert its scheme of arrangement to a takeover offer. This would enable Fox to complete the deal much more easily (assuming regulatory approval) as Fox is allowed to use its 39% stake in the vote. However it comes at a cost as takeover offers do not automatically squeeze out minority shareholders," the analysts wrote.
While a new owner can de-list at 75% ownership and squeeze out minority owners at 90%, RBC believes Disney "would much prefer" to have 100% of the equity allowing full operational consolidation.
"Because of this, we believe Fox is more likely to prefer to sweeten the terms of its offer. Based on history we assume a 7% increase in the offer to 1150p, which we use as our new price target."
WPP shares have rallied to a six-month high amid a recent improvement in the ad market, capped off by a bullish view given by analysts at Goldman Sachs and Numis on Friday.
Goldman expects 2017 ad figure to emerge showing a "more positive note in most TV markets", based on analysts' conversations with industry participants, read-across from recent results and comments from large advertisers.
A "slightly more positive" outlook is seen for 2018, weighted towards the first half of the year, helped by easy comparatives compared to last year's slow start, and sports events.
Previewing WPP's final results on 1 March, broker Numis forecast profit before tax of £2.09bn and earnings per share of 118p, with the consensus forecast for £2.195m and 120p respectively.
Other global marketing communications groups have already reported and Numis characterises the tone as "cautiously optimistic", with IPG particularly upbeat, and both IPG and Omnicom guiding to organic revenue growth of 2-3% for 2018.
"After a challenging 2017, we would not be surprised if WPP guided very cautiously at its finals and then raised guidance as it progressed through the year. The group gave a robust defence of its business model at the Q3 results when it indicated that consultancies and Facebook/Google were not structurally challenging its business, but that 2017 was disappointing due to the major CPG clients reducing spend."
