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The Expert View: AstraZeneca, Vodafone and Antofagasta
Our daily roundup of analyst commentary on shares, also including Beazley and Carclo.
by Michelle McGagh on Feb 05, 2016 at 05:00
AstraZeneca: analysts bullish
Analysts remain ‘bullish’ on the prospects for shares in pharmaceuticals behemoth AstraZeneca (AZN) this year.
Liberum analyst Naresh Chouhan retained his ‘buy’ recommendation and target price of £58.00 on the shares, which fell 6.5% to £41.25 yesterday.
‘2016 guidance is in line at the earnings per share level but slightly light at the sales level,’ he said. ‘Externalisation revenue is expected to be higher than 2015 and research and development (R&D) is expected to be flat.
‘Q4 2015 earnings per share was a small 2% miss from in line sales and a 5% earnings miss. This was driven by higher R&D investments and worse gross margin but a 5.1% lower than expected tax rate partly made up the difference.’
Chouhan added that the company confirmed its dividend ‘at the magic $2.80’ and there was good pipeline news.
‘Interesting news on the pipeline; (diabetes drug) Saxa/Dapa is expected to be refiled in the US in H1 2016. We had removed all US sales so if it is approved then there would be upside to our numbers,’ he said. ‘Given the 4% yield and pipeline newsflow this year, we remain bullish on AstraZeneca share price performance this year.’
Antofagasta on weaker footing to weather commodity storm
Copper mining group Antofagasta (ANTO) is expected to lose further footing this year due to shrinking margins and a weakening balance sheet.
Investec analyst Marc Elliott retained his ‘sell’ recommendation but increased his target price from 263p to 305p. The shares jumped 9.2% to 410.1p yesterday.
‘With shrinking margins, a weakening balance sheet, almost negligible dividends – if maintained – this year and a capex profile that may not be sustainable, we believe Antofagasta is set to further lose its, relative, safe haven appeal,’ he said.
‘Several years of drawing down the balance sheet with enhanced dividends, and what could be viewed as questionable capital investment, leave the company on a much weaker footing to manage the commodity downturn. An overhaul of development plans may be required.’
He added: ‘Following quarterly results and updated guidance, we have lifted our earnings estimates and target price, largely due to lower operating expenditures. However, with some assets/projects delivering negative value, we maintain our “sell” recommendation.’
Beazley’s ‘excellent’ results could make it a takeover target
Specialist insurer Beazley (BEZG) has reported strong 2015 results but they could make it a target for predators.
Shore Capital analyst Eamonn Flanagan retained his ‘buy’ recommendation on the shares but does not have a target price. The shares were flat at 361.4p yesterday.
‘Beazley reported an excellent set of results for 2015, nicely above both our and the market’s expectations,’ he said. ‘The figures reflect Beazley’s ability to innovate, the careful husbandry of its assets, smart underwriting and a well-reserved book of business.
‘These are all complemented by a focus on capital discipline, as evidenced by a further special dividend. The payment of an 18.4p special dividend in 2015 was well ahead of our 12p forecasts, with the market on 11p. Adding this to the 9.9p ordinary dividend paid in 2015 amounts to 16.6% of the 2015 net assets, a very impressive outcome.’
Flanagan added that the group was right to ‘highlight the virtues of its position as an independent’ and the diversification of its speciality book but it ‘does make it a highly attractive proposition for a potential predator’.
Room for rating expansion at Carlco
There is further room for expansion at plastic products supplier Carclo (CAR) after strong interims.
Peel Hunt analyst Dominic Convey retained his ‘buy’ recommendation and target price of 165p on the shares, which rose 4.6% to 148.3p yesterday.
‘The interim management statement confirms that trading within the two core divisions remains strong and order intake has improved in recent months at Precision Engineering,’ he said.
‘Given the current momentum, major capacity expansion, earnings visibility, margin expansion at Technical Plastics and the quality of the Wipac business, the March 2017 estimated price/earnings ratio of 12.4x looks very conservative.
‘Our 12 months target price of 165p assumes a prospective March 2018 estimated price/earnings ratio of 12x, but we see scope for further rating expansion as the forecast earnings growth materialises.’
Vodafone reports sixth month of growth
Telecoms giant Vodafone (VOD) has reported a sixth quarter of growth in service revenue.
Jefferies analyst Jerry Dellis retained his ‘buy’ recommendation and target price of 250p on the shares, which dipped 1.4% to 209.9p yesterday.
‘Sixth quarter of strengthening service revenue growth. Germany and Italy better than expected; India weaker,’ he said.
‘In our 26 January note…we argued that EU mobile is benefitting from supportive macro/ pricing and highlighted prospects for operating leverage in Germany and Italy.
‘We showed that Vodafone’s performance gap is narrowing. Ahead of rivals reporting it’s too early to conclude on this latter point but regaining control in Germany is a hopeful sign.’
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Look up the shares
- AstraZeneca PLC (AZN.L)
- Vodafone Group PLC (VOD.L)
- Beazley PLC (BEZG.L)
- Antofagasta PLC (ANTO.L)
- Carclo PLC (C1Y.L)