Broker tips: Punch Taverns, Glaxo, ITV

14th Oct 2009 11:58

Debt laden pubs group Punch Taverns continues to divide opinions in the investment analyst community. Broker Panmure Gordon, which is bearish on the stock, calculated the group's net asset value per share at 260p after Punch announced a £667m write-down in the value of its pub assets this morning. Of the 260p, goodwill accounts for 78p per share, Panmure Gordon reckons.The broker said full year results were broadly in line with its expectations though the Leased estate performed slightly better than expected, while the Managed estate underperformed a tad.'With the response of the OFT [Office of Fair Trading] to CAMRA's [Campaign for Real Ale] super-complaint regarding the beer tie due by the end of next week, we retain our Sell recommendation,' Panmure Gordon said.Charles Stanley, however, sees the stock as a 'trading buy', postulating that with stabilisation in the pub estate appearing to take hold and with the disposal programme bringing down debt swiftly 'this may mark a genuine turning point for group operations.'As well as upgrading the stock from 'hold', the broker has upped its price target from 115p to 160p.'Given the severity of the profitability declines experienced across FY09 [full year to 22 August 2009] and the degree of stabilisation now being demonstrated, we argue that this impairment charge should mark the worst of this cycle,' analyst James Dawson said.Yesterday's setback in a US court for drugs giant GlaxoSmithKline may dent the share price, in which case broker Panmure Gordon would be 'aggressive buyers' of the stock.A jury in a Philadelphia court ruled on Tuesday that Glaxo had failed to give sufficient warnings to doctors and pregnant women that its Paxil antidepressant could cause birth defects, and awarded damages of $2.5m to the plaintiff.'With a further 600 similar cases in the queue, a liability totalling $1.5bn is possible. We note the company is likely to appeal and our analysis of the situation makes us confident that the liability will not amount to anywhere near $1.5bn,' the broker said.Panmure Gordon believes the jury failed to properly take note of Glaxo's change to the Paxil package insert in September 2005 in which the documentation made reference to an increased risk of congenital malformations in infants born to mothers who took Paxil during the first trimester of pregnancy.'Clearly the jury thought the information was suppressed. In that, we think the company will have a good chance of winning on appeal and we expect the company to also prevail against a number of the remaining 600 cases,' Panmure Gordon believes.Broker Nomura Securities reckons an unexpected improvement in the advertising market should offset the setbacks broadcaster ITV has suffered recently.Nomura has upgraded the stock from 'reduce' to 'neutral' and bumped up its price target to 55p from 40p.The broker notes that the probable retention of contract rights renewal 'against all expectations' and the company's problems in securing people for the chairman and chief executive roles have been negatives for the company but 'the most important driver for a broadcaster, advertising, has swung in ITV's favour.' 'This is against both our expectations and runs contrary to the recent expectations of most media buyers,' Nomura's Matthew Walker said. The broker has responded to the late surge in advertising placements by upgrading its advertising income forecasts for ITV.'Our ITV family advertising forecasts move to -11% for 2009 from -13.3% and to -1% from -2% in 2011. If advertising has been reset, then H1 [first half] 2011 could potentially be up,' Walker suggests.Expectations of advertising revenue declines moderating has led to Nomura forecasting a 49% boost to earnings per share (EPS) in 2010 and a 20% rise in EPS in 2011. On this basis, the price/earnings ratio of ITV 'moves from a premium to other broadcasters in 2010 to a discount in 2011 and this makes it difficult to maintain a Reduce rating,' the broker said.Nomura's upgrade follows Goldman Sachs's decision to upgrade ITV from 'neutral' to 'buy' at the beginning of the week.