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The latest ASX 200 stocks to be hit by downgrades from top brokers

The share market looks well placed to run higher through to early 2020 after the global economy got two shots in the arm with the easing trade war and a better outlook for Brexit.

This paves the way for the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index to test new record highs in the not too distant future.

But some stocks may not have the opportunity to partake in the merry making. Leading brokers have just downgrade two stocks, which are underperforming during lunch time trade.

In a bingle

The Smartgroup Corporation Ltd (ASX: SIQ) share price crashed for a second day after Credit Suisse cut its recommendation on the novated leasing company to “neutral” from “outperform”.

The stock crashed 6.1% to $7.12 at the time of writing, making it the second worst performer on the ASX 200 after V MONEY UK/IDR UNRESTR (ASX: VUK).

The sell-off in Smartgroup was triggered by news that its insurance underwriting partner was changing its policies and price, which will mean less commission for Smartgroup.

“SIQ estimates an A$4mn unmitigated impact for FY20 based on a 1 July 2020 implementation date; this amounts to an A$8mn annualised impact, which is ~9% of our previous FY20 NPATA estimate,” said Credit Suisse.

“We were surprised by both the extent of the earnings hit and the fact that evidently there are ‘service fees’ outside of the commission structure.”

The broker is worried that there may be more bad news to come in regards to the rebates, brokerage and commissions paid to novated leasing companies. Credit Suisse lowered its price target on the stock to $8.25 from $10.10 a share.

Deceptively cheap?

Another stock that’s underperforming today is the IOOF Holdings Limited (ASX: IFL) share price. Shares in the wealth manager tumbled 2% to $8.06 after JP Morgan downgraded the stock to “underweight” from “neutral”.

Tuesday’s fall marks a change in sentiment towards IOOF, which was on a comeback trial after Australia and New Zealand Banking Group (ASX: ANZ) agreed to sell its wealth division at a lower price to IOOF.

“However, we believe there are still many risks ahead for the wealth industry, and IFL has been cautious about rushing for change and implied almost no exposure to the industry pressures that have led to substantial pressures on AMP AWM/banks seeking to divest their wealth operations,” said JP Morgan.

“All this suggests that their earnings face greater risks than peers’ at a time of rapid change (incl. ASIC risk), so the apparently cheap valuation metrics may be misleading.”

The broker’s price target on IOOF is $6.75 a share.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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