Broker tips: Astra, Admiral, FirstGroup

3rd Nov 2010 12:32

The recent share price weakness of drugs giant AstraZeneca has prompted Panmure Gordon to review the group's long-term prospects, and the broker has found plenty of "reasons to buy today".The broker notes the shares are 7.3% below the year-to-date peak in September and reckons the current share price is "an attractive entry level".Whatever the market may think of the shares currently, the broker still sees the stock as a relatively good performer.Analyst Savvas Neophytou highlights the Brilinta (Astra's anti blood-clot drug) registration by 16 December and the Zictifa (cancer treatment tablets) advisory committee meeting on 2 December as catalysts for outperformance in the coming months.Additional catalysts include the approval of the diabetes drug Dapagliflozin, and the SATURN clinical trial results."We remain buyers of AstraZeneca which is trading on a 9.1 times price to 2011 full year earnings ratio which we consider undemanding," Neophytou said. "AstraZeneca remains our top pick and we expect further upgrades to drive the share price.""Consensus forecasts for 2014 in particular remain persistently below our forecasts and we can expect as much as 17-20% upgrades to consensus in the next few months.""We expect the company to continue to 'beat' on earnings and quite possibly also increase the scope of its long-term guidance as early as January 2011 if the pipeline continues to crystallise further."The broker retains its 'buy' rating and has confirmed a target price of 3,600p.Despite a positive third quarter statement from car insurer Admiral, finnCap thinks it is it time to disembark.Vehicle count has grown by 28% in the UK with rates going up in double digits "but competition remains in the aggregator market, which is Admiral's life blood", said analyst Charles Coyne.Claims trends have remained stable since the first half - "this is a vital piece of news, because the fallout from the Equity Red Star/Cox $360m reserve strengthening has been limited elsewhere", Coyne said.Ancillary income is also stable at over £74 per policy giving the group a "strategic competitive advantage".However, "despite returns on equity of circa 80% this year and next, the shares appear overvalued", Coyne said."Admiral trades on 19 times net assets, a price earnings ratio of 25 times and a yield of 3.9%". The target price of 1,250p-1,300p "looks more appropriate".The broker stays with the lower range of this forecast with a target price of 1,250p and confirms a 'sell', despite strong fundamentals and excellent relational contracts with key reinsurers.KBC Peel Hunt retains a 'hold' on FirstGroup after the bus and train group released its half yearly report Wednesday.Results were closely in line with the broker's forecast with pre-tax profit up 14% at £77.7m (forecast £78m), and earnings per share increase of 16% to 10.4p."The company remains on track for modest earnings growth to March 2011 (we forecast +6% to 41.6p on profit before tax of £287.7m). We are not expecting to change our forecast significantly", analyst Paul Hickman said.Net debt has reduced by £91m to £2,191m. The group has increased its cash generation target for the year from £150m to £180m, excluding disposal proceeds "which have so far generated £31m from the sale of GBRf [GB Railfreight]", the broker said.The broker sees the interim results as "reassuringly in line", and retains its 'hold' rating with a target price of 380p.