Broker tips: InterContinental, Vodafone, Micro Focus

11th Aug 2010 11:34

The share price slide on Tuesday in the wake of interim results that were ahead of expectations provides an excellent opportunity to buy shares in hotels group InterContinental Hotels Group (IHG), according to Panmure Gordon.The broker has increased its full year earnings per share estimate by 10.1% to 92.6 cents to reflect improved revenue per available room (RevPAR) assumptions, lower interest costs and a marginally lower tax rate.Earnings forecasts for 2011 have also been revised upwards, and using these new estimates the stock is trading on 16.1 times projected 2011 earnings and is supported by a 2.7% yield.This has prompted the broker to upgrade the stock from "hold" to "buy" and increase its price target to 1235p from 1085p.With Vodafone trading at a 52-week high Nomura Securities sees several reasons for profit-takers to emerge over the summer.The broker cited the company's exposure to the US dollar, which could prove a drag on earnings, as a reason to sell, as well as the widening revenue underperformance in Europe, the mobile termination rates regulatory risk and the deferred update on portfolio optimisation.On top of that, the broker notes, Vodafone's discount to its discounted cash flow valuation is now below 10%, compared to a discount of 14% for the sector, and the stock "is no cheaper than the sector" on a ratio of 5.3 of enterprise value to earnings before interest, tax, depreciation and amortisation.Though Nomura is bullish on the sector it is agnostic on Vodafone and thinks that with the strategy update from the company not due until autumn "excitement may not be sustained".The broker has a price target of 168p for the stock. Business software group Micro Focus saw its shares slump by almost a third on Wednesday morning as the company announced that some large deals have been delayed and organic revenue growth this year would therefore be lower than previously expected.KBC Peel Hunt has downgraded its organic revenue growth forecast for the current year from 5.5% to 2%, but is provisionally maintaining its profit before tax forecast, which would imply earnings before interest, tax, depreciation and amortisation margins of 41%, upgraded from 40%."With confidence already fragile and an H2 [second half] weighted year, Micro Focus's rating will not start to reflect ambitions for double digit growth in the medium term," concedes KBC analyst Alex Jarvis.The broker has cut its recommendation from "buy" to "hold", with the share price supported by a 3.7% yield and projected price/earnings ratio of 11.