Broker tips: Sainsbury, Micro Focus, International Power

11th Nov 2009 11:19

The renaissance of supermarket group Sainsbury continues apace after forecast busting interim profits were announced on Wednesday morning, but Seymour Pierce is maintaining a cautious stance on the group's prospects.'Although the interim results came in at the top end of expectations there will be some nervousness arising from the company's recent sales performance,' reckons Seymour Pierce analyst Freddie George.The broker is sticking with its fiscal 2009/10 profit before tax forecasts of £625m and will not be changing its 'hold' recommendation for the stock.Broker Charles Stanley has described the turnaround in the performance of Compuware and Borland under the new ownership of Micro Focus as 'stunning'.The market appears to agree, with the share price of the UK legacy software specialist rising sharply in early trade on Wednesday.The broker says that trading at the core business is creditable, but the acquisitions are 'motoring ahead'.'Guidance on EBITDA [earnings before interest, tax, depreciation and amortisation] margins for the full year has doubled to 30% from 15%, with revenue guidance for the run rate increasing from $150m to $160m. We knew Micro Focus was a powerful integrator of acquired businesses but this performance is stunning, for two business that were barely profitable prior to acquisition. The revised guidance adds $17m to FY 2010 EBITDA,' said investment analyst Ian Mitchell.The broker has upped its earning per share (EPS) forecast for 2010 by 11%, and its 2011 EPS figure by 12%. It has reiterated its 'buy' recommendation and 570p price target for the stock.Energy company International Power has upped its profits guidance for the year, allaying recent fears about sputtering earnings growth.'The current market view of International Power is an EPS [earnings per share] momentum, growth play with 40% payout. The recent falls in price have been caused by faltering EPS expectations (consensus 9% down in 2009, significantly down in down in 2010 due to Czech assets sales) and poor US performance,' explains Lakis Athanasiou at Evolution Securities.Athanasiou believes the company is wrong in continuing to regard itself as a growth company. 'We believe it needs to reposition itself as a yield play. It needs to say it has no further merchant growth aspirations, boost dividend per share payout to 50% in 2010, maintaining dividend growth,' the broker suggests.The broker has a 'buy' recommendation on the shares and a price target of 320p.