Funding Circle floated on the London Stock Exchange last month © Charlie Bibby/FT

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What’s happening

Hikma Pharmaceuticals hit a record high after the drugmaker raised revenue and margin expectations for its injectables and generics divisions. It also announced an expanded partnership with inhaler developer Vectura to clone GlaxoSmithKline’s Ellipta respiratory drug franchise.

Analysts saw Hikma’s guidance as lifting consensus earnings for full-year core consensus earnings expectations by 10 per cent to about $1.33 a share.

Inmarsat led the FTSE 250 fallers after the satellite operator said its core maritime Fleet Broadband business was losing share at the low end of the market. Third-quarter earnings from Inmarsat beat market estimates thanks to its aviation division, where marketing costs were reduced, but a 6 per cent drop in maritime revenues was much sharper than expected.

Sellside stories

● Goldman Sachs, Morgan Stanley, Merrill Lynch and Numis Securities started coverage of Funding Circle, following the peer-to-peer business lender’s 440p a share flotation last month. All four brokers acted as bookrunners on the float.

Merrill Lynch started Funding Circle with a “buy” rating and 570p target. It said to expect the lender’s structural cost advantages versus banks to drive market share, with room for growth given less than 1 per cent penetration of a £470bn addressable market. However, it cautioned that the model was unproven in a recession.

Numis also rated Funding Circle a “buy” with a 523p target. “Scale is vital for platform businesses and Funding Circle holds number one positions in each of its chosen markets of UK, US, Germany, and the Netherlands,” it said.

Goldman put a “neutral” recommendation and 425p target on the stock. It forecast Funding Circle would deliver compound annual revenue growth of 37 per cent from 2017 to 2023 and forecast the company would be free cash flow positive in 2021. But evidence of successful execution would be needed for the shares to re-rate, said Goldman, which valued the stock at a 10 per cent discount to sector peers to reflect macroeconomic and delivery risks.

Morgan Stanley started coverage of Funding Circle with an “equal weight” stance and 380p target. The company’s concept is “relatively nascent” so investors had limited visibility on path to profitability, long-term growth and margins, it said.

It also worried that the model had not yet been tested in a downturn.

“Lending to small businesses is clearly sensitive to the economic cycle and the platform model heavily dependent on user confidence. To date, the company has operated in a benign credit cycle (low credit losses and high adjusted returns). While the firm stress tests the portfolio, if real world returns disappoint or user confidence diminishes for any reason, the platform may come under pressure”

Morgan Stanley

● Canaccord upgraded Hunting, the oilfield equipment provider, to “buy” from “hold” with a 775p target. Concerns about bottlenecks in the US shale infrastructure market had led Hunting to drift 25 per cent below its June peak, in spite of an improving international outlook, it said.

“We continue to believe that the outlook for the fast-cycle parts of the oil services sector is attractive, with customers having broadly worked down much of their excess inventory and consequently a steady improvement in capacity utilisation in the industry”


● In brief: Campari upgraded to “neutral” at Goldman Sachs; CGG cut to “equal-weight” at Morgan Stanley; Evonik downgraded to “equal-weight” at Barclays; G4S downgraded to “sector perform” at RBC; Game Digital raised to “buy” at Canaccord; Malin rated “buy” at Jefferies; Tod’s cut to “sell” at Société Générale; Wereldhave downgraded to “underweight” at JPMorgan Cazenove; Wizz Air raised to “buy” at Investec.

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