Broker tips: UK life insurers, Entertainment One, Micro Focus International

10th Dec 2015 15:38

(ShareCast News) - Shares in UK life insurers will catch-up with their European peers next year after underperforming in 2014, as Solvency II proved to be a more acute headwind for them, Nomura told clients on Thursday.Yet developments for them had generally been better than expected for them, so clarity on Solvency II positions should help recover some of the lost ground.Names with high yields and dividend growth such as Aviva and Legal and General should do best, the broker explained.Indeed, the bulk annuities pipeline was said to be remaining strong, flows into drawdown/hybrid products should pick-up in 2016 and corporate pension flows should recover, analyst Fahad Changazi said.Aviva remained his top-pick, Changazi said. Nonetheless, he trimmed his target price on the shares from 690p to 670p, while staying at a 'buy'. His call on Legal&General remained at 'buy' and his target price at 300p.As well, St.James's still had some of the best growth prospects and was "ideally" placed to be a long-term beneficiary of the pension changes in Britain, the analyst added.Prudential on the other hand would continue to be held back by the adverse macroeconomic sentiment in Asia and upcoming regulatory changes Stateside.Finally, following a period of underperformance versus the sector the analyst said he considered Standard Life as "fairly valued" and in consequence bumped up his recommendation from 'neutral' to 'neutral'. The recent sharp drop in the price of Entertainment One's shares offered an "attractive" entry point, analysts at JP Morgan said.A £285m debt issue was priced on 4 December at 6.875%. Mechanistically, the terms of that debt refinancing meant the company's adjusted earnings per share would be 3% and 8% lower in fiscal years 2016 and 2017, respectively, from 21.3p and 22.9p to 20.7p and 21.1p.However, the broker noted how chief Darren Throop pulled out his cheque book on 9 December, picking up another 131,000 shares in a show of faith in his company.Furthermore, in response to volatility in the share price the firm said the firm continued to trade in line with the group's underlying expectations."We think both are reassuring," analyst Marcus Diebel said. Micro Focus International delivered better-than-expected interim sales growth and operating cost figures, and net debt was converging towards the company's target, but the key attraction of the shares lay in its ability to return high volumes of cash in the medium-term, analysts at Investec said.Indeed, analyst Julian Yates saw potential for a 5% upgrade to the company's EBITDA after the strong performance it put in over the first six month of the year.Nonetheless, it was the "big picture" which drove his positive stance on the stock.The company had the wherewithal to return 40% of its market cap in cash over the medium-term, he said, thanks to dividends, leveraging the balance sheet and a potential sale of its SUSE unit, "which would put the stock back on a price-to-earnings multiple of 10."Yates retained his 'buy' recommendation and 1,600p target.