Broker tips: Punch, Hardy Underwriting, RWS

12th Oct 2010 13:00

The share price of Punch Taverns is looking the worse for wear after the group's full year results, though the figures were in-line with market expectations and current trading looks positive.Broker Panmure Gordon & Co. remains optimistic that Punch gives the potential to "generate significant shareholder value from restructuring."The pubs owner has now refined its leased division into a core estate of 4,700, having decided that around 1,300 pubs are surplus to requirements.Panmure Gordon says that current trading is "better than we expected" with the improved trading delivered in the final quarter to 21 August 2010 continuing into the early weeks of the 2011 financial year. Net debt at the year end was slightly below broker expectations at £3.1bn.With new chief executive officer Ian Dyson starting a "comprehensive review of strategy, operating performance and capital structure" with a view to exploring options to create shareholder value, the broker has retained its 'buy' recommendation and 105p price target.Broker KBC Peel Hunt reiterates that current trading in the core business is improving and the strategic agenda has moved on.Analyst Paul Hickman commented: "These results set the scene for a clearer identification of equity value in the managed pubs and group cash, while the necessary restructuring of securitisations around tenanted pubs may take its course without prejudice to the equity."KBC has also retained its 'buy' recommendation for Punch with a 110p price target.Wealth manager Killik & Co. notes that there were a number of exceptional items in the accounts - "primarily property impairments (£218m) and an increase in lease provision (£33m) that have reduced the tangible NAV [net asset value] (i.e. excluding intangibles such as goodwill) to 151p" - that reduce some potential valuation support for the shares.The opening of an office in Singapore has strengthened the Asian credentials of insurance underwriter Hardy Underwriting, FinnCap claims.The announcement of a new office will focus attention on the company's diversification into more of a composite underwriter."The story used to be one of helicopters, with Hardy as the long established leader at Lloyd's," FinnCap analyst Charles Coyne observes. "In order to get the right blend of property, catastrophe, marine etc, it is vital to have international exposure through local underwriters, and this deal should strengthen that position." The Singapore office will write property reinsurance, construction/engineering, terrorism, financial institutions, accident and health and marine/aviation. With the shares trading at a 7% discount to asset value and with a yield "just shy of 6%", the broker has reiterated its "buy" recommendation and 300p price target. Intellectual property firm RWS Holdings is an "undervalued unique quality business", according to Numis Securities, RWS's nominated adviser (nomad).The broker has nudged up its price target for the stock from 316p to 323p after RWD's year-end trading statement revealed the company is sitting on more cash than Numis expected.Forecasts for the current financial year, which runs to the end of September 2011, have been tweaked with Numis raising its revenue expectation from €60m to €63m. The broker is sticking with its profit before tax projection of £15.0m, but adds the caveat that this is assuming that "£/€ remains at current mid 80's level, technical translation has stabilised and treating relocation costs as one-off."Based on Numis's earnings estimates the stock trades on a forward price/earnings ratio of 11.1, or about 9 with cash stripped out, and "a progressive yield of 5.5%" adds to the stock's appeal, suggests Numis analyst Francesca Raleigh."The rating is undemanding for an attractive asset in the IP [intellectual property] space (high margins intact, cash generation, market leadership) and there is PE [private equity] interest in the space," added the broker, which rates the shares a "buy"."Risks include legislation (RWS believe the implementation of the European Community Patent is many years away and that the London Agreement is behind them), reputation (human error), currency (RWS has largely sterling costs and Euro billings which it seeks to mitigate with a short term hedging strategy), client spending patterns (e.g.. timing and filing of patents) and pricing pressure," the broker concluded.