Broker tips: Astra, Tullow, Miners

8th Jul 2009 12:02

Producers of generic alternatives to AstraZeneca's prostate cancer drug Casodex have been slow off the mark and this has created an unexpected windfall for the UK drugs giant.US drugs firms Mylan and Caraco received approval from the US Food and Drugs Administration (FDA) yesterday to start shipping their generic versions of Casodex, but this was around three months later than broker Panmure Gordon had been expecting. The delay could have been worth around $75m in revenues to Astra, the broker estimates, adding that earnings estimates may be upgraded as a result.The broker rates the shares a "buy" in expectation of a strong trading update on 30 July. Irish oil explorer Tullow Oil was the worst performing blue-chip in early trading Wednesday but recovered by mid-morning, helped by positive comment from its house broker Royal Bank of Scotland."While we anticipate some minor changes to forecasts ... we see nothing in the statement to alter the fundamentals of a solid investment case," reckons RBS analyst Phil Corbett.Broker Charles Stanley is more ambivalent about Tullow's appeal as an investment, rating it as a "hold"."In 2011, EPS [earnings per share] should show a more meaningful increase as production increases but at this stage of its development Tullow and other small E&P [exploration and production] companies are valued on a NAV [net asset value] basis. Currently, estimates of Tullow's core NAV are about 700p and potential appraisal and exploration activity could increase this to about 1200p," Charles Stanley analyst Tony Shepard suggests, adding that Tullow's current share price of around 890p puts it on a 25% discount to the higher valuation."If further drilling successes confirm the potential, the share price could move closer to this level [1200p] but it also depends on projections of the long-term oil price which is expected to be about $75 a barrel," Shepard said.Mining stocks have fallen out of favour over the last month, with the sector down by one-seventh, and this has encouraged brokers Investec and Citigroup to advise clients to look at the sector for bargains.Investec has upgraded BHP Billiton and Rio Tinto from "hold" to "buy" in the wake of share price weakness. Rio, having risen above £25 in June, is now trading below £20 while BHP Billiton is more than £2 below the high point achieved in June of just over £15.The broker is less bullish about the prospects of platinum producers, and also has doubts about Anglo American which is highly exposed to the buoyant South African rand.Citi also likes Rio, which it identifies as its favoured play in the sector. It has raised its target price for the stock from £28.10 to £29, after a review of the sector which resulted in Citi's commodities team upgrading their commodity price forecasts.The US bank has upgraded Antofagasta and Vedanta from "sell" to "hold". Citi has upped its price target for ENRC from 720p to 750p but trimmed its price target for Lonmin from £13.85 to £11.90.