Right now, Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US), ASOS (LSE: ASC) and Hargreaves Lansdown (LSE: HL) are not winning friends among City analysts. Here’s why.
Hargreaves Lansdown
Popular online stockbroker and “fund supermarket” Hargreaves Lansdown has been a great success story. Founded in 1981, trading from a bedroom, the Bristol-based company joined the stock market in 2007 and rapidly grew to become a FTSE 100 company.
However, the one-time City darling has fallen out of favour over the last year — so much so that twice as many analysts now rate the company as a “sell” than a “buy”. Earnings forecasts have come down over the year, with analysts no longer seeing the company maintaining its previous breakneck rate of growth.
Even last month’s Budget proposal to allow retirees to sell their annuities — which should be positive for Hargreaves Lansdown — failed to shift analysts’ negative sentiment on the company. HL uber-bears UBS suggested providers offering financial advice could be bigger gainers, and that other Budget measures — Help-to-Buy ISAs and the removal of tax on cash savings — could divert flows away from equities and funds.
HL trades on a current-year forecast P/E of 33, and UBS reckons that’s way too rich. The Swiss bank’s analysts have a 12-month share price target of 830p, which is getting on for 30% below the current price of 1,150p.
ASOS
Pioneering online fashion company ASOS is another one-time City darling that has fallen out of … er, fashion. Analyst sentiment deteriorated as one profit warning followed another last year. By November, an unprecedented five analysts were rating the stock a “sell”. Today, that number has increased to seven — although, to be fair, the company still retains a slightly larger coterie of supporters.
ASOS yesterday released half-year results that were better than expected — more accurately, not as bad as expected — and management said that after last year’s setbacks “momentum in the business is building”. Nevertheless, bearish analysts reiterated their “sell” ratings.
Analysts at Investec commented: “The long-term story in our view remains one of continual investment suppressing margins; in the absence of material revenue outperformance, this leaves the shares overvalued”. In a similar vein, Cantor Fitzgerald said: “We … believe the company will have to continue to discount and offer free delivery charges and returns to maintain sales momentum”.
As with Hargreaves Lansdown, many of the ASOS bears actually like the business itself, but think the valuation is just far too high. Forecast current-year earnings put ASOS on an eye-watering P/E of 90 at a share price of 3,732p.
Royal Bank of Scotland
Royal Bank of Scotland continues to be the FTSE 100 finance house with the fewest City supporters. Only about 12% of analysts rate RBS a “buy”, while there are 36% in the “sell” camp.
Since the company’s annual results at the end of February, Societe Generale has issued a downgrade to “sell”. The only move the other way I can find is from Investec, which goes only so far as to recommend a “hold” — and with a reduced 12-month price target. In fact, most analysts — whether positive, negative or neutral — have cut their target prices since RBS’s results.
The concerns of the bears are little changed, and include the overhang of the government’s 79% shareholding, uncertainty about when dividends will resume, the continuing impact of fines and redress for past misconduct and the likely three or four years before the bank makes any kind of decent return on equity. A number of analysts see no reason why RBS’s shares should trade above book value (387p) in the prevailing circumstances, while the bears have targets as low as 320p.
