Broker tips: Astra, Sportingbet, Blacks Leisure

28th Oct 2010 13:17

The market had expected the third quarter would be a tough one for AstraZeneca and so it proved.Company revenues declined by 3.7% from a year earlier to $7,898m, but topped market expectations of $7,830, though they failed to meet Panmure Gordon's expectations of $7,961m.Core earnings per share (EPS) fell 10% to $1.50, a shade below consensus of $1.52, and, again, below Panmure Gordon's expectations; the broker had pencilled in $1.62, but it does not seem too fussed by the company's miss, noting that "clean" core EPS, which strips out asset write-downs, was $1.56.Looking across the product range, sales of Crestor ($1,374m vs Panmure's projection of $1,450m) and Symbicort ($640m vs $670m) fell below the broker's expectations, but Nexium ($1,242m vs $1,240m) and Seroquel ($1,303m vs $1,285m) came out ahead.The big miss was on Arimidex, where sales of $284m fell well below Panmure Gordon's forecast of $370m, as generic alternatives to the drug bit into sales in the US more than the broker had expected.Nomura Securities, by contrast, went too far the other way, predicting Arimidex sales of $266m, versus the market consensus of $284m.Panmure Gordon remains a "conviction buyer" of Astra, which trades on an undemanding multiple of 9.1 times projected 2011 earnings per share. "We note that although consensus has moved the way we had expected it to since the company provided long-term guidance in January 2010, 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 said.Panmure Gordon has a target price of 3600p for Astra. Reports that regional authorities in Spain are at loggerheads with the country's Ministry of Spain over online gambling reforms should be good news for online bookie Sportingbet, Daniel Stewart reckons."Local observers are writing off a late 2011 launch for Spain's online gambling market as overly optimistic, citing that national authorities need to cooperate with autonomous communities and cannot impose their own conditions. The tax structure is going to be the most important issue in the bill, and some point out that the draft bill was fairly basic and that the most important regulations still needed to be drafted," notes the company's house broker.If the reports prove true and the new legislation is delayed it would delay the timing on when Sportingbet would need to apply for a licence to operate in Spain and, more pertinently, start paying associated Spanish taxes. It also removes any likelihood that Sportingbet would the Spanish reforms will hit the company at the same time it is dealing with the liberalisation of the Greek gaming laws."We remain buyers of the stock and continue to see Sportingbet's strategy of expanding into new markets, developing the breadth of its product offering (in:play and mobile) and consistently achieving superior sports betting margin as adding value for shareholders, which should mitigate to some degree the short term hit to profits and cash from the liberalisation of Greece and Spain," the broker concluded.While attention is understandably focused on the outcome of the numerous bid approaches that the company has received, management of Blacks Leisure does not seem to be allowing the negotiations to be too much of a distraction, according to broker finnCap."The interim loss of £8.4m was substantially better than we were expecting (£16m). The variance arose within expenses; we were only £0.6m adrift at gross profit level," said finnCap analyst David Stoddart."We are encouraged to see that the capital expenditure focus seems to have switched from refurbishments to opening new stores in selected towns. Performance in recent openings has exceeded management's expectations. The additional revenue provides better cover of central overheads, including distribution," Stoddart observed.The broker has its forecasts and target price for the camping goods group under review but expects to trim the size of the loss it is expecting the company to make this year."With the consumer background remaining challenging, a potential bidder will need to identify significant synergies to justify much of a premium. The presence of multiple potential bidders provides competitive tension, so we remain Holders," finnCap said.