Broker tips: Logica, Punch Taverns, Premier Foods

16th Dec 2009 12:55

Recent weakness in the share price of IT contracting company Logica has provided an 'attractive entry point' for those yet to get on board, Morgan Stanley believes.The shares have fallen back by around 15% since mid-October, meaning they once again trade on 9 times Morgan Stanley's projected earnings for 2010. The Morgan Stanley (MS) team notes that such a valuation represents a discount of around 20% to Logica's peers, 'which is increasingly difficult to justify considering the strong execution till now.'MS attributed part of the recent share price weakness to fears about public spending cuts following next year's UK general election, but the broker reckons concerns about the likely effects on Logica's UK public sector business are overdone. Around 12% of the group's total revenues come from the public sector in the UK.US rival Accenture releases its first quarter results late on Thursday and this may prompt investors to take another look at Logica. The broker has reiterated its 'overweight' recommendation for Logica and maintained its 152p price target. Another disappointing trading update from Punch Taverns has prompted Panmure Gordon to lower its target price on the tenanted pub group to 71p from 87p.The broker notes that in the larger leased division, beer sales and rental income are continuing to decline, with profitability showing a similar rate of decline for the full year.In the managed estate, in which pubs are run by Punch rather than leased to landlords, sales in the 16 weeks to 12 December are down 1.6%, it notes.The lower price target comes on the back of a 10% reduction in Panmure's estimates for Punch's profits for 2010.Panmure has a 'sell' rating on Punch. Investors tucked in to Premier Foods after UBS said that after falling by a quarter over the last three months, the shares of the Mr. Kipling cakes and Sharwood sauces firm had come back into buying range.'We acknowledge a number of arguments for staying on the sidelines; a still stretched balance sheet, the low growth profile of Premier's portfolio, the drawing to a close of the big cost savings programme, a big (c£2.5bn) legacy pension liability, and, the absence of any dividend,' the broker note said, but UBS analyst Alan Erskine argues that the business is 'fundamentally sound'.While upgrading the stock to 'buy' from 'neutral', the broker has trimmed its price target by a couple of pence to 41p, based on a projected enterprise value/earnings before interest, tax, depreciation and amortisation multiple of 6.5.