Broker tips: Jupiter Fund Management, AJ Bell, Direct Line

Barclays upgraded Jupiter Fund Management on Wednesday to 'equalweight' from 'underweight' and cut its price target on the stock to 110.0p from 120.0p as it pointed to a discounted valuation and emerging optimism.

"A new CEO, a cost-reduction strategy, early signs of progress in winning institutional mandates and a trough valuation multiple mean we see risk/reward at Jupiter as balanced," the bank said.

"While retail flow momentum remains a concern, after a 23% assets under management decline year to date, we move to EW."

Shore Capital has cut its rating for online stockbroker AJ Bell on valuation concerns.

The broker, which reduced its rating on the stock to 'hold' from 'buy', said: "Both the advised and direct-to-consumer platforms continue to take market share, and we believe organic growth, pre any market impact, will be 5-6% in the 2023 full year, even after accounting for much tougher economic circumstances. Fourth-quarter growth was an annualised 7%.

"Despite further caution on net new money and a higher tax rate in our new numbers, the combination of revenue yield expectations being a little ahead of consensus and a mark to market that is a significant positive quarter-to-date, means that our full year 2023 forecast [for] earnings per share is unchanged."

However, Shore Capital added that it loves the business, but thinks its valuation was now enough.

"Organic growth in this economy should be lower, yet the stock is on the same-ish 2023 multiple of 24.8 times as it was on 17 January. It is also trading at a record premium to Hargreaves Lansdown. Discounted cash flow suggests a 300p fair value."

Analysts at Berenberg slightly lowered their target price on insurer Direct Line from 266.0p to 259.0p on Wednesday after the group's Q3 trading update failed to meet consensus estimates.

Berenberg said the issue with Direct Line, which also issued some disappointing guidance, remains to be its motor insurance business, where premiums were down by 9% year-on-year, as well as higher combined ratio guidance due to a delay in the settlement of bodily injury claims.

"While investment income guidance was raised, which is a positive, the biggest question mark for investors was that they could not see any evidence of price rises in Direct Line's reported numbers given that premiums are actually falling faster than policies," said Berenberg.

The German bank added: "We reduce our estimates for the new combined ratio guidance and lower our premium estimates; however, we reiterate our view that Direct Line will maintain its dividend policy. Direct Line trades on 7.7x 2023E EPS, for a 2022E dividend yield of 11.4%."