Broker tips: Glaxo, Rio Tinto, MITIE

18th May 2009 13:22

Drugs giant GlaxoSmithKline confirmed on Friday it has received orders for 127.9m doses of its anti-viral vaccine from four governments stockpiling medicines to be used in the treatment of the H1N1 flu virus.Broker Charles Stanley has estimated that these orders, along with other potential orders, could amount to a one-off benefit of at least £600m to the company's top line, "with the benefit to group EPS [earnings per share] estimated at circa 3%."Despite the potential boost to earnings, the broker has maintained its "hold" recommendation for the stock. The mining sector is down 11% over the last week, adding weight to the growing number of voices suggesting that the sector's revival has been premature.US bank Citigroup has been reviewing the sector and is of the opinion that any good news likely to emerge in the next six months from miners has already been priced in.Stockbroker Exane BNP Paribas has also been sizing up the options open to Rio Tinto and their effect on the share price.The broker reckons that a veto from the Australian authorities, which would probably trigger a rights issue, would put Rio Tinto's share price "under significant pressure."The broker has reduced its rating on the stock from "outperform" to "neutral". It has revised its target price to £28, deeming a revised bid from BHP Billiton as possible, but unlikely."Should some revised form of the Chinalco deal be finalised, potentially limiting the dilution for shareholders other than Chinalco, we estimate the additional upside at around 20%. There would be more upside in the event of a new bid by BHP, although the latter may not offer as generous a parity as it did in 2007/2008," the broker said.Support services MITIE delivered a solid set of results on Monday morning but broker KBC Peel Hunt sees better value elsewhere in the sector.The broker's earnings estimates for 2010 are at the lower end of the market range, at £80.6m for adjusted pre-tax profit. Ahead of the company's meeting with investment analysts the company is keeping its estimates unchanged, but sees a "4% uplift to earnings due to lower tax, minority interest and shares."Despite the strong cash generation and the management's "robust outlook", KBC believes the shares look vulnerable on 12 times projected 2010 earnings.Broker Charles Stanley backs up this view, saying the shares represent poor value in comparison with sector peers Connaught, currently trading at 12.6 times projected 2010 earnings, and Mears, trading at 10.1 times projected 2010 earnings.Charles Stanley's believes Connaught and Mears's concentration on the more stable public sector and the greater visibility this gives to future earnings gives them the edge over MITIE.