Credit Suisse downgrades Standard Life on limited upside
Credit Suisse has lifted its target price for Standard Life but downgraded the insurer from 'outperform' to 'neutral' after the shares' recent rise.
The target price for the stock has been lifted from 410p to 425p to reflect the strong price achieved on the sale of Standard Life's Canadian business to Manulife announced in September - the £2.2bn disposal was £650m above the value Credit Suisse had ascribed to the operations.
However, the bank said it was taking a neutral stance on the stock with the new target now just 4.7% above the closing price of 406.6p earlier this week.
Credit Suisse said the company was "changing shape" after recent deals such as the sale of its Canadian operations and acquisition of Ignis Asset Management.
"Most notably, we forecast the proportion of operating profit derived from Standard Life Investments to increase from 26% in 2013 to 50% in 2016. As part of this transition, we expect growth of 15-20% per annuam in underlying (ex-Canada) earnings between 2014 and 2016," the bank said.
While the deals will be positive for growth, aggregate capital intensity and cash conversion of earnings - and subsequently dividends - Credit Suisse said "the key risk is AUM [assets under management] retention and growth" which may slow.
The stock is trading at 16.6 times estimated 2015 earnings - a premium to others in the UK life insurance sector - though analysts said that this was justified.
The shares were 0.9% lower at 401.3p by 12:40.