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The Expert View: AstraZeneca, Wolseley and Weir Group
by Michelle McGagh on May 29, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Lancashire and Dairy Crest.
Future looks bright for AstraZeneca
The long-term plan for AstraZeneca (AZN) is looking optimistic and the share price will reflect a chance that Pfizer may return for another takeover bid, according to Deutsche Bank analysts.
Analyst Mark Clark retained a ‘hold’ rating but increased the target price for the shares from £38.00 to £39.50. Shares were yesterday flat at £42.51.
‘With Pfizer having exited stage left, we assess Astra’s long-range plan, which looks highly optimistic to us, and the raft of recent pipeline announcements, mostly early/mid-stage but sufficient to lift our outer-year forecasts and target price by a few percent,’ he said.
‘Over the coming months the shares will probably trade on a mix of fundamental ‘fair value’, close to £40/share, and the residual likelihood of a Pfizer return deal, perhaps in the mid to high £50s range.’
Clark added that the risks for Astra’s share price is in the ‘waxing and waning of mergers and acquisitions (M&A) speculation involving Pfizer’ and business development activity around M&A and partnerships.
Wolseley at the end of downgrade cycle, says Barclays
Plumbing specialists Wolseley (WOS) could be at the end of its downgrade cycle as demand for construction increases.
Barclays analyst Paul Checketts retained an ‘overweight’ rating and target price of £37.00 despite earnings estimates for 2015 falling 12% since May 2012. Shares were yesterday flat at £33.36.
‘Wolseley’s share price has lagged peers as earning have been on a downwards slope since May 2012,’ he said. ‘We think we are now nearly at the end of this downgrade cycle as demand for construction products looks set to improve across most of Wolseley’s end markets.
‘The combination of the shares having underperformed, cyclically improving demand and steps being taken by management that should lead to the business outperforming its competitors make this one of our favourite stocks in the sector.’
Lancashire may be cheap but its future is uncertain
Shares in insurer Lancashire (LRE) remain weak following a year of underperformance and a slow-burning acquisition but Peel Hunt does not see this as a buying opportunity.
Analyst Mark Williamson retained a ‘hold’ recommendation and reduced the target price from 893p to 652p on the shares, which jumped 3.4% to 637p yesterday. Williamson pointed to numerous problems within the company, including the acquisition of reinsurer Cathedral Capital last year and high level departures.
‘Lancashire materially underperformed the wider sector over the past 12 months and we remain cautious as the benefits from the Cathedral acquisition have arguably proven slower to emerge than hoped, recent operating performance has fallen short of expectations and [due to] the recent abrupt and unexpected departure of founder and chief executive Richard Brindle,’ he said.
‘While we accept that weakness could prove a buying opportunity, the degree of uncertainty persuades us to maintain a “hold” recommendation while our new forecasts and valuation model points to a fair value of 625p.’
Weir offer for rival rejected but other targets in sight
Engineering company Weir Group (WEIR) has had its revised offer for rival Metso Corporation rejected.The revised offer, which was at a 13% premium to the initial offer and a 34% premium to the pre-offer price, was rejected by Finnish Metso.
Liberum analyst Jack O’Brien retained a ‘hold’ on Weir and a target price of £25.00. Weir fell 0.8% to £25.84 yesterday on news the Metso offer had been rejected. Although he said the Metso deal would have been 19% accretive to Weir there was not a chance of the company sweetening the deal.
He added that the rejection did not mean there would not be consolidation in the market and expected Weir to pursue other targets.
‘Weir does not intend to sweeten the deal but we believe that the landscape for pumps and valves engineers, including names such as IMI and Sulzer, remains ripe for consolidation,’ he said.
‘Management are exploring acquisition targets, large and small, across all three divisions. We venture that a tie-up with a fellow flow control engineer like IMI or Sulzer could be viable, especially given complementary product ranges.’
Dairy Crest pull-back is ‘overdone’
The pull back on Dairy Crest (DCG) shares over the past two months is ‘overdone’, according to Jefferies analyst Alex Howson.
Howson retained a ‘buy’ rating but reduced the target price from 575p to 490p. He also cut his full year 2015 forecasts for profit before tax to £63.9 million from £72.5 million and now sees ‘little downside risk as the imminent likelihood of falling farmgate milk prices is supportive’.
‘The 20% pull-back on the shares since March feels increasingly overdone and, we argue, overlooks the inherent value of the brands and property portfolio,’ he said. ‘While growth will be modest, 11.3 times price earnings and 7.7 times EV/EBITDA is a small price considering a best-in-class 5% dividend and de-risked pension.’ Shares were yesterday flat at 435p.