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The Expert View: AstraZeneca, Resolution and Premier Oil
by Daniel Grote on Apr 29, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Tristel and Xeros.
Liberum says Pfizer needs to go higher for Astra takeover
Shares in AstraZeneca (AZN.L) rocketed yesterday after Pfizer confirmed it had made a tentative takeover bid, but analysts at Liberum believe Astra’s US rival will need to cough up more money if it is to seal the huge deal.
AstraZeneca yesterday jumped 605.1p, or 14.8% to £46.85 after Pfizer said it had approached Astra in January with an offer valuing it at £46.61, representing a 30% premium on its 2 January share price.
Investors are now awaiting a fresh bid from Pfizer, which has said it would base a future bid on Astra’s 17 April share price. A 30% premium on that price would value the company at £49.15 per share.
Liberum analyst Naresh Chouhan said that price would likely prove unacceptable to Astra. ‘We believe a bid is unlikely at the implied Pfizer offer of £49.15 because AZN will be unwilling to accept that price and Pfizer will not want to go hostile,’ he said.
‘The £49.15 potential bid significantly undervalues AZN. Pfizer makes a strong case for the deal which would benefit both shareholders (AZN shareholders would receive majority paper, we believe) and hence a price closer to £60 would offer good value for AZN shareholders in our opinion.’
Cash-rich Resolution a ‘buy’ for Deutsche
Deutsche Bank analyst Oliver Steel has upgraded Resolution (RSL.L) from ‘hold’ to 'buy’, pointing to the life insurer’s healthy cash reserves.
Steel said the group, a closed-book insurer, was facing headwinds in a weaker-than-expected underlying cashflow outlook and an implication that more acquisitions would be needed to meet dividend targets. Changes to pension rules that will remove the need for many to buy an annuity will exacerbate those problems, as will the City regulator’s plans to probe insurers’ historic pension sales.
But Steel said despite those clouds on the horizon, the level of cash the group was sitting on, coupled with a fall of around 15% in Resolution’s shares in the last six weeks, made it a ‘buy’.
‘Unallocated shareholder cash… looks set to be £520 million at end 2014,’ he said. ‘On top of this, the group has now confirmed it is looking to sell Lombard, which could bring in a further £300 million potentially. Were all this to be used for a share buy-back, we estimate it would be accretive to cash flow per share to the tune of 17%. In reality, management appears more minded to go down the mergers and acquisitions route; this too could bring benefits.’
Steel has placed a target price of 320p on the shares. Yesterday they were up 3.5p, or 1.2%, at 297.9p.
Premier Oil merger wouldn’t be so slick, says Canaccord
Canaccord Genuity analysts have reduced their target price for merger target Premier Oil (PMO.L) due to uncertainties over its Sea Lion oil discovery project in waters north of the Falkland Islands.
Analysts Thomas Martin and Charlie Sharp have knocked 50p off the target price for the shares, bringing it down to 375p, but maintained it as a ‘buy’. Premier Oil yesterday added 3.1p, or 1%, to reach 329.8p.
Premier has been the subject of a merger bid from smaller rival Ophir Energy, which it rejected. Martin and Sharp were sceptical of Ophir’s claims that the merger would produce a ‘well-funded, refocused, full cycle exploration and production company’ and said doubts over Sea Lion had led to the price cut.
Premier said in February it would be looking for a ‘farm-out’ partner to join forces with on the Sea Lion development. ‘Up until now our risked net asset value has been priced upon Premier carrying its current 60% equity interest in the project through to first oil,’ Martin and Sharp said.
‘We revise our net asset value to incorporate an assumed farm-out and revised risk assumptions, incorporating the chances of securing a farm-out partner.’
Trio of upgrades for buoyant Tristel
FinnCap analyst Keith Redpath has upgraded his forecasts for Tristel (TSTL.L) for the third time in fourth months, as the AIM-listed healthcare equipment supplier builds on its strong performance.
Redpath has raised his target price from 52p to 63p after the company announced it expected to report profits of no less than £1.5 million for the year ending 30 June, ahead of the £1.3 million FinnCap had been expecting. Shares yesterday jumped 5.5p, or 11.3%, to 54p.
FinnCap has raised its forecast for 2014 in line with the new guidance, and upped its profit forecast for 2015 from £1.4 million to £1.8 million. With these new forecasts, its target price values Tristel on a price-earnings ratio of 17.8 times.
‘We believe these multiples are appropriate for the high-growth, cash generative, dividend-paying and debt-free company that Tristel has now become,’ Redpath said. ‘Given the recent history of upgrades, the risk to our estimates is firmly on the upside.’
Jefferies predicts Xeros will clean up
Jefferies has kicked off its coverage of Xeros (XSG.L) will a ‘buy’ rating, arguing the cleaning technology company is ‘ready to put laundry into a spin’.
Xeros has invented a near-waterless washing, floated on AIM earlier this year. Jefferies has placed a 164p target price on the shares, which yesterday were up 3.7p, or 3.8%, at 99p.
‘Xeros has a patented polymer bead technology that can replace water in cleaning processes,’ said Jefferies analyst Joe Spooner. ‘The group is initially focused on laundry applications. It can demonstrate significant benefits from use, has large end markets in its sights and, as a completely new approach, we believe its technology has the potential to change industries.’