Broker tips: Pru, Punch, Regus

22nd Mar 2011 13:17

Prudential is "firing on all cylinders", with its final results beating consensus expectations on all key performance measures, according to UBS. "The Asian growth story remains very much intact, while super-normal US profits are likely to take longer than we previously thought to be competed away," says the broker. Its only concern is Asian persistency, but "management's optimism in this area is telling given their track record on assumption setting," according to UBS. The stock is yielding 3.5% prospectively which the broker says is undemanding given the group's structural growth potential. UBS remains a buyer and ups the target price from 800p to 850p, saying "our detailed analysis suggests a strong underlying picture."The proposed demerger of Punch Taverns has prompted broker Peel Hunt to downgrade the pubs group as the terms seem less favourable to equity shareholders than previously assumed.Punch has proposed to split itself in two by the end of the summer, separating the managed pubs arm, Spirit, from the tenanted business. Though the market has given the thumbs-up to the decision, analyst Paul Hickman is disappointed with the allocation of assets to Spirit."Spirit keeps £110m-120m of the cash at plc level which, after demerger costs of circa £30m, will be about £240m. 'Punch' gets the rest of the cash, and also the interest in Matthew Clark, on the basis that its major trading relationships are with the tenanted pub organisation," said Hickman.He notes that the deal looks like a "sub-optimal solution" for equity shareholders, who will fell they were entitled to retain the whole of plc cash and the equity in Clark. "Although shareholders still get the potential benefit of equity in the tenanted division of Punch, we struggle to attribute any value to this."Punch Taverns is downgraded from a 'buy' to a 'hold', and the 101p target price is placed under review. Peel Hunt initially estimates a value of around 70p.RBS thinks that Regus remains a play on a US economic recovery and continued emerging markets growth, and, with increasingly positive macroeconomic data globally, it keeps its positive stance on the serviced office specialist.The group's 2010 results were broadly in line with forecasts, with revenues of £1.04bn and pre-tax profit (before exceptional items) of £23.6m, close to the broker's estimates of £1.03bn and £20.5m, respectively."Management is confident that 2010 represented the trough year in this economic cycle for Regus," the broker said. In light of improving occupancy data in 2011, RBS has modestly increased its expansion forecasts in terms of new work centre openings between 2011 and 2014, but leaves its pre-tax profit and earnings per share (EPS) forecasts unchanged.As global economic data continues to improve, the broker believes Regus can surpass its previous peak of EPS of 12p in 2013. "Based on peak earnings analysis, we reiterate out 140p price target and 'buy' stance."