Broker tips: Astra, ITV, Next

2nd Mar 2011 13:14

UBS has downgraded pharmaceutical giant AstraZeneca as broker believes the scope for outperformance over a 12-month time frame has been reduced.UBS has shifted from a "buy" rating to "neutral", now that the market has taken account of higher expected returns from Crestor, Astra's cholesterol treatment drug, and Brilinta, its drug for the treatment of acute coronary syndromes.The market has also taken on board Astra's exposure to emerging markets, contributing to the shares' outperformance versus the other members of the Big 5 European pharmaceuticals companies over a one year and two year time horizon.UBS has reduced its earnings per share estimate for 2012 by 3% after taking into account the margins impact of generic competition to Seroquel, its bipolar disorder drug.The 12-month price target has been chopped from 3,700p to 3,125p, as setbacks to drugs in the pipeline "leave fewer options for growth and increase mergers & acquisitions risk", UBS said. "We prefer Sanofi-Aventis, which we upgrade to Buy," the broker said."Ahead of market appreciation of Astra's long-term fundamentals lies 2011-12 generics risk which, in our view, builds from here. GlaxoSmithKline (Buy, Key Call, 1650p), which is coming out of the cliff, and Sanofi-Aventis (Buy, €60), which has improved its profile and should soon see earning momentum, offer more interesting catalysts over the coming months," the broker concluded.A strong set of results from ITV is likely to trigger earnings estimates upgrades and has made a believer out of broker Peel Hunt.The terrestrial broadcaster reported 2010 revenue of £2.06bn and pre-tax profit of £321m, beating the broker's forecasts of £1.92bn and £276.2m, respectively. Debt fell from £612m to £188m, with the company signalling the return of the interim dividend this July.The performance was driven by a strong recovery in national TV advertising, with ITV outperforming the overall TV market by 1%, according to Peel Hunt.ITV points to a good start to 2011, with booked first quarter TV ad revenue up 12% and April's year on year growth in the 8-12% range. "Despite hardening comparatives, we expect that ITV will continue to perform well as TV markets stabilise," says analyst Patrick Yau.The broker upgrades ITV to a 'buy', from 'hold', and places its target price under review.Nomura expects a tough year at fashion and homeware retailer Next, but says that share buybacks plus home space and directory growth keeps the outlook upbeat.The Japanese broker expects a 3% decline in like-for-like (LfL) sales when Next reports its full year results on the 24th of March, and predicts that the company's price hikes will not fully recover cost inflation, causing margins to slide by 1 percentage point.However, analyst Fraser Ramzan believes that the group can execute cash-accretive share buybacks, which could leave earnings per share ahead by 5%.Also, Ramzan says that growth in Directory - the Next catalogue business which now accounts for 40% of profits - "will continue in 2011 (+5%) given improved access and some cannibalisation of retail stores." The broker sees opportunities for profitable new home store space offsetting some of the LfL weakness in legacy retail stores.Nomura stays a 'buyer', but cuts the target price to 2,600p, from 2,650p.