Broker tips: Ashtead, Dechra, ProStrakan

7th Sep 2010 13:04

First quarter figures from equipment rental firm Ashtead should generate full year earnings estimate upgrades, Singer Capital Markets believes, with the outlook for the company looking promising."First quarter profit before tax of £11.9m significantly exceeded consensus, and our own very bullish estimate of £7.4m. However, Ashtead is building momentum in both its US and UK operations with the supply/demand relationship in balance, rates rising and its peers also reporting similar trends," said FinnCap analyst Andy Murphy. The broker thinks the current valuation looks compelling and it has reiterated its "buy" recommendation and 185p price target. Based on Singer's earning's forecasts for fiscal 2012 the company is trading on a price/earnings ratio (PER) of 10.3, and this is projected to fall to 7.4 in 2013. This compared to an average mid-cycle forward PER of 16.5 for the sector. "Finally, with the dividend now increasing, holders can look forward to an increasing return. We anticipate the dividend will be more than covered by earnings this year giving scope for Ashtead to exceed current dividend growth expectations," the broker said.Shares in Scottish speciality pharmaceuticals company ProStrakan slumped by a third on Tuesday morning after the chief executive (CEO) walked the plank after the company ran into a number of problems. KBC Peel Hunt responded by cutting its recommendation to 'hold'.In a note entitled "Bad news comes in fours", KBC Peel Hunt said it was reducing its target price from 140p to 60p after "disappointing news for Sancuso (manufacturing suspended for two to three months), Abstral (delays to approval), and the CEO falling on his sword." The company also announced a £5m downgrade to operating profit for 2010."The company is clearly in turmoil following the departure of the CEO and disappointing news on two lead US products. Profitability in 2010 looks impossible even with a Fortesta milestone, and 2011 profits are highly uncertain," KBC analyst Paul Cuddon conceded."We believe Adcal in the UK (£20m in sales) and Abstral in Europe (c£20m) could become attractive targets for speciality pharma/private equity and that 3x sales, .ie. £120m (60p) would reflect a fair valuation on these two assets," Cuddon added.The buy case for veterinary products group Dechra Pharmaceuticals is increasingly compelling, FinnCap believes, after the group posted a 10% rise in annual profit Tuesday morning and hiked its dividend 18%.Revenue growth of 5.5% year on year was in line with FinnCap's expectations and had been signalled in the company's pre-close trading update. That means that Dechra is growing its revenues at a rate faster than the underlying market growth reported at 2-3%, FinnCap analyst Keith Redpath notes.Net debt is also on the path FinnCap expected, with the company announcing a reduction to £6.7m at the end of June from £15.5m a year earlier."Since our initiation of coverage on 8 December 2009 at 447.9p, Dechra's shares reached a high of 505p (twice) before falling to recent lows. We reiterate our 533p price target. While other companies in the veterinary space have had issues, Dechra continues to grow," FinnCap said.