Broker tips: Quilter, Pearson, Prudential

(Sharecast News) - Citi trimmed its price target for Quilter on Thursday to 68p from 70p and reiterated its 'sell' rating. The bank noted that larger-than-expected cost cuts have led to 10% consensus earnings per share upgrades since H1 results, with Quilter outperforming the UK market by around 25%.

"Yet a third major cost-cutting programme in four years may imply low confidence in the revenue outlook, which our analysis suggests is the main profit driver," it said.

"Our cost benchmarking analysis indicates that revenues, not costs, are Quilter's key issue."

Citi said that detailed margin analysis had driven its FY 2025 revenue estimate 7% below consensus, with around 30% downside to consensus EPS.

Prudential's share price pulled back after its first-half results received a positive reaction from the market the previous session, though analysts at Barclays still expect the stock to rise a further 50% over the long term.

Prudential's results "consistently beat relative to consensus", Barclays said in a research report, with adjusted operating profits up 6% at $1.46bn and APE sales up 42% at $3.03bn.

Barclays also said chief executive Anil Wadhwani's newly announced strategy showed "clear, achievable ambition".

Following the completion of his strategic and operational review, Wadhwani announced two key financial objectives: growing new business profit by 15-20% CAGR between 2022 and 2027; and achieving double-digit CAGR in operating free surplus generated from in-force insurance and asset management business between 2022 and 2027.

After the earnings call with management, Barclays said: "Prudential's results call focused on management's confidence in an ambitious, well-rounded and (in our view) achievable growth strategy, positive momentum in most of the group's markets post-Covid, and capital deployment focused on organic growth."

Barclays maintained its 'overweight' position on the stock and 1,575p target price.

The shares were down 2.8% at 972p on Thursday morning after rising 1.5% on Wednesday.

The recent weakness in Pearson's share price has been unwarranted, according to broker Shore Capital, which reiterated its 'buy' rating on the stock.

Shares in the educational publisher have fallen by 3% over the past month, and 8% over the past six.

"Although this outturn represents outperformance versus most of our Media watchlist stocks it is, in our view, disappointing relative to the company's prospects, its underlying attractions, and the robust performance and outlook assessment contained within its interim results," said ShoreCap analyst Roddy Davidson.

First-half results from Pearson revealed that underlying sales rose 6% year-on-year while operating profits jumped 44%, as strength in its English Language Learning, Workforce Skills and Assessment & Qualifications divisions offset weakness in Virtual Learning and Higher Education.

The company also gave updates on its AI strategy, and how it was selectively deploying tech to help leverage its proprietary learning content and adding to initiatives already in place, Davidson highlighted.

"We believe that Pearson can successfully utilise AI to enhance its content, its services, and its ability to add value to consumers. Importantly, we also see the depth and legitimacy of its proprietary IP and the guarantee of accuracy and editorial oversight this provides as a substantial competitive strength in a space where issues around plagiarism, cheating and false information are well documented."

Davidson said that Pearson's growth prospects are not adequately reflected in the current stock valuation - trading at 14.7x earnings - and ShoreCap's fair value estimate of 1,106p suggests around 30% upside to the current share price.