Broker tips: Astra, ITE, Blacks Leisure

27th Jan 2011 13:02

Results from drugs giant AstraZeneca were in line with expectations but 2011 guidance was less severe than Charles Stanley had been expecting."We note that guidance for a flat to low single-digit decline in the top line (using constant exchange rates) is broadly in line with existing consensus. The forecast for pre-R&D [research & development] operating margin is also in line with existing consensus," said Jeremy Batstone-Carr, head of investment research at stockbrokers Charles Stanley."The balance sheet shows an improvement in AstraZeneca's net cash position and we wait to see how the company will chose to utilise this flexibility. It should be noted that were the enhanced share buyback programme to be maintained through the next three years, this would likely have a significantly beneficial impact on EPS [earnings per share] growth expectations going forward," Batstone-Carr added.On the down side, the group has "lowered its pipeline contribution within long-term guidance by c.$1bn (to $3.5bn)," and, in the absence of an explanation from Astra, investors might speculate that the reduction pertains to the delay in the approval of the blood thinning drug Brilinta and the discontinuation of Certriad, Batstone-Carr suggests.The broker is sticking with its "accumulate" rating and confessed it was impressed by the results and also the guidance, which proved much less negative than feared. Exhibitions group ITE has made a strong start to its new financial year, but Singer Capital Markets warns against extrapolating too much from what is traditionally a quiet period for the group.Analyst Johnathan Barrett notes that like for like (LFL) revenue growth of 22% from a year earlier was impressive but was achieved against "very easy" comparative figures.The company has reiterated its revenue growth guidance for the full year of 10% or more, while contracted revenues that account for 68% of expected full year turnover gives "a good level of visibility"."We are encouraged by the booking patterns being seen in the larger shows (particularly the largest Mosbuild) and the degree of strength in local sales. Based on this we believe consensus growth assumptions should drift up to 12% LFL. This implies a c3% profit before tax upgrade," Barrett maintains."The shares rose strongly yesterday albeit from the lowest levels seen since early December. We think the company remains in an upgrade cycle and that our recovery assumptions are modest," Singer said, as it reiterated its "buy" recommendation and 279p target price.The decision by Blacks Leisure to fend off all bid approaches and go it alone does not mean that a bid will not happen one day, but it has prompted finnCap to temper its price aspirations and downgrade its rating for the stock.The broker has cut its price target to 30p and moved from a "hold" recommendation to "sell", citing the failure of the share prices of other companies that were involved in bid talks, such as Woolworths, HMV and Moss Bros, to trade anywhere near the expected offer prices.Analyst David Stoddart is also concerned about the deteriorating consumer outlook."We expect 2011 to become progressively tougher for retailers. Given Blacks' lack of earnings, and the limited availability of credit for any would-be bidders, we value the company on an fiscal 2012 EV/EBITDA [enterprise value/earnings before interest, tax, depreciation and amortisation] ratio of 5x. If we used estimated average net debt rather than year-end debt, our target price would be lower still," Stoddart concluded.