FTSE 250 movers: Downgrades hit Raspberry Pi, AJ Bell
By Frank Prenesti
Date: Tuesday 07 Jan 2025
(Sharecast News) - FTSE 250 (MCX) 20,440.29 -0.84%
Citi downgraded its stance on AJ Bell to 'sell' on Tuesday and cut its price target to 390p from 450p, citing risks from cash balances and competitor pricing.
"AJ Bell has taken significant market share in recent years, with assets under administration growth driving consensus upgrades," it said. "However, we expect price cuts for its largest D2C competitor, which may slow growth."
Citi said its analysis suggests that AJ Bell is over-earning on client cash balances, which account for around 13% of D2C AUA.
"We expect this to fall, with a 2ppt reduction a 15% earnings per share headwind," the bank said. "Our EPS estimates are 10-20% below consensus and we cut our 2027 EPS estimate by 5%."
More broadly, Citi said that in 2025, falling interest rates and increasing capital markets activity should be supportive for the diversified financials sector.
"The alternative managers and exchanges are our preferred subsectors; we note an extreme valuation gap for the former versus US peers, which we believe should narrow," it said.
It said the diversified financials sector provides a "rich opportunity for bottom-up stock picking, with wide intra-sector stock dispersion".
Pennon was knocked lower by a downgrade to 'sell' at Deutsche Bank from 'hold' and a cut in the price target to 530p from 600p as it took a look at water stocks following the publication of Ofwat's final determinations in December.
DB said the downgrade reflects the likelihood of a large equity raise, potential for a large dividend cut and lower shareholder return potential than peers.
It also said the stock may look richer than peers on 2025/26 estimated price-to-earnings, but it estimates lower equity return and RAB growth.
Deutsche reiterated its 'buy' rating on United Utilities, which has a 1,200p price target and kept Severn Trent at 'hold' with a 2,800 target.
It said the balance sheets of UU and SVT look "broadly ok" although Pennon is more leveraged.
"If Pennon doesn't raise equity we estimate adjusted net debt/RAB could rise to around 80% by 2030," it said. DB said it now models new equity of around £500m, up from £300m, which is about 30% of market cap.
"We also model a pre-emptive raise of £500m by Severn Trent in 2028/29, ahead of the next regulatory period."
It said the dividend per share looks sustainable for UU and SVT but models a 35% cut for Pennon.
Raspberry Pi tumbled on Tuesday after HSBC downgraded the shares to 'reduce' from 'buy' on valuation grounds, arguing that the Santa rally was overdone.
HSBC said Raspberry Pi has made solid progress since its IPO, showing both commercial and technology progress with its channel strategy, improving the supply chain position, traction with custom products and new product launches in 2024.
"The festive mood lifted Raspberry Pi shares last month as they outperformed not only the FTSE 250 but also all the global wider semiconductor names substantially," it said.
"We struggle to see catalysts that could drive the share price meaningfully higher in the near term," it said.
"While we like the long-term story for Raspberry Pi we think the Goldilocks scenario is asking too much."
The bank lifted its price target on the stock to 500p from 440p to reflect updated FX assumptions and a lower weighted average cost of capital. "But we believe there is too much baked into the current share price," it said.
HSBC said the new target price implies 23.5% downside.
On the upside of the 250, Oxford Nanopore led the gainers.
Market Movers
FTSE 250 - Risers
Oxford Nanopore Technologies (ONT) 138.60p 3.98%
Burberry Group (BRBY) 971.20p 1.85%
Hochschild Mining (HOC) 221.50p 1.84%
Endeavour Mining (EDV) 1,484.00p 1.64%
Plus500 Ltd (DI) (PLUS) 2,652.00p 1.53%
Chemring Group (CHG) 331.50p 1.38%
Spectris (SXS) 2,554.00p 1.35%
Ithaca Energy (ITH) 125.90p 1.21%
4Imprint Group (FOUR) 4,785.00p 1.16%
Aston Martin Lagonda Global Holdings (AML) 106.50p 1.14%
FTSE 250 - Fallers
Raspberry PI Holdings (RPI) 561.25p -7.69%
AJ Bell (AJB) 419.00p -7.30%
Ferrexpo (FXPO) 99.90p -7.16%
Baltic Classifieds Group (BCG) 317.00p -4.95%
Carnival (CCL) 1,703.50p -4.43%
Pennon Group (PNN) 553.00p -4.41%
Telecom Plus (TEP) 1,666.00p -4.14%
Bank of Georgia Group (BGEO) 4,545.00p -3.91%
Ibstock (IBST) 169.00p -3.87%
Coats Group (COA) 89.60p -3.86%
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