Hargreaves Lansdown PLC (LON:HL) was one of the stocks to benefit from an upgrade as Berenberg looked afresh at investment and savings companies against the current unusual economic backdrop.
“We believe it is a good time to take another look at the underlying drivers of growth and returns for the European investment and savings stocks. What we find is encouraging,” the analysts wrote in a note to clients.
As investment and savings companies “manage wealth, not income”, the analysts said this means they are well placed to sustain earnings growth even in a Japanese-style low-economic growth scenario and are equally well placed to cope with an inflationary environment if one materialises as their pricing models automatically adjust to rising asset prices.
Furthermore, unlike most financial companies, this sub-sector’s earnings closely reflects companies’ underlying cash generation, with a capital-light nature where cash generation or capital positions are not under strain so many companies pay an attractive dividend and carrying out share buybacks as well as making the add bolt-on acquisition.
Having conducted a survey of 1,000 users of UK investment platforms, the analyst said they are now “more confident in the longterm growth of Hargreaves Lansdown”.
St James’s Place is also upgraded “in the belief that the post COVID-19 landscape is becoming clearer, allowing investors to again focus on the structural growth and attractive valuation offered by the stock”.
Standard Life Aberdeen, meanwhile, is viewed as “a special situation”, where the analysts said they are “hopeful that the new management team will overhaul the current strategy by cutting the dividend and re-focusing on growth”.
Jupiter Fund Management PLC (LON:JUP) was a fourth upgrade in the note, with its ‘sell’ recommendation removed and replaced with ‘hold’, as it remains “overly dependent on just two fund strategies”, currently performing strongly, but the longer-term outlook for the group is seen as challenging.
Berenberg kept its ‘hold’ ratings on two other UK financials sector stocks, with Schroders PLC (LON:SDR) seen as “fairly valued”, Man Group PLC (LON:EMG) deservedly on a higher rating but without any re-rating catalysts on the horizon.