Broker tips: Hikma Pharmaceuticals, eSure, Informa, Huntsworth
By Iain Gilbert
Date: Thursday 16 Aug 2018
(Sharecast News) - Peel Hunt upgraded Hikma Pharmaceuticals to 'add' from 'hold' on Thursday and bumped up the price target to 1,950p from 1,160p following the company's "strong" first-half results a day earlier.
The brokerage said upgraded 2018 guidance and more optimism on the sustainability of margins at the injectables division and the pace of recovery in generics have led it to lift its 2018 revenue, operating profit and earnings per share forecasts by 9%, 28% and 35%, respectively.
"We are now at the top end of company guidance for injectables and generics, the two divisions responsible for the H1 surprise," it said.
"The upgrade cycle should support positive momentum into the Q4 capital markets day, but with only modest upside to our new target price we admit we are late to this party."
Peel noted that Hikma's share price has already risen more than 45% since the beginning of the year before the strong first-half results were released.
"Essentially flat consensus earnings over the same period means that trading multiples on current (pre-H1) consensus forecasts leave Hikma looking fully valued. However, with the street likely to come up to meet our new forecasts, this should provide headroom for further share price rises."
UBS upgraded Esure to 'neutral' from 'sell' and hiked the price target to 280p after the insurer agreed to be bought by private equity firm Bain Capital for 280p a share, as it said there is a high probability of deal success.
The bank pointed to the fact that the deal has support from key shareholders controlling nearly 48% of the shares and said there is limited scope for a counter-bid, give an implied 14x 2019E earnings per share valuation, which is at the upper end of the peer group. In addition, it noted limited anti-trust concerns as this appears to be Bain's first investment in the UK insurance market.
Should 75% of shareholders be supportive, UBS estimated that the deal could be finalised by early December 2018. If the transaction receives 50-75% support, which it views as unlikely given the support of key shareholders, it would expect completion in early January.
UBS said Esure's first-half results, which were announced alongside the Bain deal, were weaker than expected, with pre-tax profit 8% below consensus, mostly due to weather losses. However, it said the positive for the market was that as prices slowed, Esure slowed growth somewhat, maintaining a relatively stable gross motor premium year-on-year despite claims deflation.
Morgan Stanley downgraded Informa after its results did not impress last month, though there was still lots to like about the exhibitions organiser and business publisher.
The first-half operating profits at the end of July missed the bank's forecasts across the group's four divisions, mostly from underperformance in exhibitions and the Knowledge & Networking arms. Group margins fell from 31.1% to 30%, with margins dropping in all four divisions.
The UBM acquisition was also a "touch soft" that requires a strong acceleration in the second half to meet targets, but the analysts "still like" the addition as the "greater exposure to exhibitions improves the quality of EPS". And the balance sheet is in good shape.
While Morgan Stanley upped its 2018 EPS number slightly, for 2019-20 analysts trimmed their EPS forecasts reduction circa 3%, after a 2% currency benefit, so nearer a 5% underlying reduction, mostly from a reduction in Informa margin assumptions and the incremental £10m investment planned to revive the fashion vertical at UBM.
At a recent price of 800p, the analysts noted that Informa's shares trade at an overall premium to the sector at 15.3 times 2019 EPS versus the media sector at 15.4, with an EV/EBITDA of 12.1 versus the sector 9.7 and a free cash flow yield of 6.1% versus a sector at 7%.
Morgan Stanley downgraded its rating to 'equal-weight' from 'overweight' and kept its price target at 850p.
Analysts at Berenberg updated their forecasts on Huntsworth following the healthcare and communications group's "better than expected" first half.
Berenberg upped its target price on Huntsworth from 135p to 150p, after having included the firm's acquisition of San Francisco-based healthcare marketing agency Giant Creative Strategy and bumped-up its estimates for the firm's earnings per share in 2018 and 2019 by 5% and 11%, respectively.
The broker noted that despite the group's first-half results being largely in line with expectations, the rapid fall in Huntsworth's share price following their release indicated that it was "worth picking apart the numbers in a little more detail".
After having done so, Berenberg concluded that Huntsworth's figures may have been "slightly better than they appear".
Berenberg said that some of the disappointment seen in Huntsworth's marketing unit was, in its view, a result of the re-segmentation of the group's profit and loss at the end of 2017 and also highlighted the firm's "excellent" divisional margins throughout the year.
The analysts also pointed out that excluding FX and restructuring costs, Huntsworth's results would have "smashed" its earnings per share forecasts by about 11%.
Margins at the company's marketing and medical arms were "excellent" too, beating Berenberg's estimates by 220bp and 310bp each. In communications they had undershot its forecasts by 100bp, but almost completely due to restructuring costs.
"Our 150p price target is roughly in the middle of the more-conservative methods and near the bottom of the straight P/E approach," they said.
"However, with only 15% of annualised group operating profit from non-healthcare activities, we believe that earnings momentum could drive the market to focus on P/E, leaving considerable upside even to our target."
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