Even though financial services companies rarely set pulses racing, analysts at Peel Hunt have stirred interest today by publishing eight stocks with appeal to value, growth, income and small-cap investors.
Based on the broker's target prices, the eight from the sector boast potential upsides of 15% or more. There's no place, however, for doorstep lender , which is probably the highest profile and most intriguing of financial services stocks after its spectacular share price collapse.
Peel Hunt has become more positive on Provident since its fully underwritten rights issue restored balance sheet strength. However, it continues to adopt a cautious approach, with a 'hold' rating and 730p target price.
In terms of value, Peel Hunt's Stuart Duncan and Anthony Da Costa are more interested in and , with potential upsides of 15% and 19% to 2,150p and 220p respectively.
Brooks, which provides investment management services, has seen little movement in its share price in the past two years, despite growing discretionary funds under management by 41% to £11.7 billion since the summer 2016.
As the impact of recent investment starts to reduce, Peel Hunt thinks 2019 will see the resumption of earnings growth to support further dividend increases.
With the valuation multiple set to reduce sharply in 2019 to 13.7x, the broker said this undervalued the strength of the Brooks franchise, which it believes is underpinned in a consolidating sector.
The Peel Hunt team also questions the current CMC Markets valuation, given factors such as the scalability of a well-invested platform and the attractive weighting of revenues from high-value clients. The company is also well positioned when volatility re-emerges from a 25-year low.
CMC trades at an EV/earnings multiple of 8x, which is a 10% discount to nearest rival , while it is expected to yield 5%.
In terms of top income stocks, Peel Hunt looks to and . TBC is the parent company of the largest banking group in Georgia, where GDP is forecast to accelerate to about 5% this year.
Additional growth levers include bancassurance and investment banking where the market is in its infancy. With a target price of 2,150p, Peel Hunt reports a dividend yield of 3.3% this year, rising to 4.5% in 2020.
Source: interactive investor Past performance is not a guide to future performance
Credit management services provider Arrow offers significant target price upside - at 495p -boosted by a strongly growing dividend. The yield is forecast to rise from 3.9% in 2018 to 5.6% in 2020. The shares trade on a EV/earnings ratio of 5.7x, which compares well against the international peer average of 12x.
The sector's top growth stocks in the eyes of Peel Hunt are and .
Specialist mortgage bank Charter Court recently issued its first set of results since its October IPO, with headline numbers well ahead of expectations.
Peel Hunt thinks the company offers the prospect of 15% compound profits growth over the next three years. One of the significant short-term opportunities is likely to be new underwriting standards for complex landlords, which should benefit specialist lenders at the expense of the larger banks.
The shares trade on about 7x 2018 forecast earnings. The broker has a target price of 370p.
Impax enjoyed "exceptionally strong inflows" during 2017, with early signs suggesting that this momentum is continuing into 2018 after assets under management jumped to £11 billion at the end of March. This was helped by the recent acquisition of sustainable investing firm Pax World Management.
On a three-year compound annual growth rate, earnings are expected to increase by 24% although Peel Hunt thinks this could prove to be conservative given the upgrade momentum in earnings. Shares have a 190p target price.
Among the small-caps in the sector, Peel Hunt likes and with target prices of 60p and 165p respectively.
Fund manager Miton's recent results came in ahead of already upgraded forecasts, with assets under management of £3.8 billion and 33% profits growth to £6.8 million. The dividend was increased by 40% to 1.4p, which was more than the 1.1p forecast.
Longer-term prospects look to be supported by increased diversification, with Peel Hunt believing the group's valuation significantly downplays prospects and represents a major discount to others in the sector.
With Morses Club well placed to capitalise on the difficulties at rival Provident Financial, the company has increased annual customer numbers by 6% to about 229,000. Results today showed net loan book growth of 19% to £72.8 million, while adjusted profits increased 8.5% to £19.2 million.
Peel Hunt adds that Morses has a more defensive and high-quality loan book. It thinks that shares deserve to trade on a higher multiple, justified by its return on equity and dividend yield. Today's pay-out rose 9.4% to 7p.
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