Broker tips: Glaxo, Housebuilders, Retailers

23rd Feb 2010 13:03

US senators want GlaxoSmithKline to withdraw its antidiabetic Avandia on concerns it may increase the risk of heart attacks, but analysts at SocGen say this is unlikely.Glaxo maintains it shared all relevant information with the US Food & Drug Administration (FDA) and a 2009 study said it was unlikely to lead to any increase in heart attacks.The French bank reckons the remaining US Avandia franchise (£425m in 2009) represents a mere 2% of 2009 group earnings, while generics are expected from 2012.Best-selling asthma drug Advair is also under fire, although SocGen believes the FDA's review of labelling will result in temporary dips in prescriptions at best.It's the "underappreciated" generic risks linked to Advair that really bug the broker though."While GSK's business is among the most resilient among the EU majors in the absence of premature Advair generics, we see limited upside and believe that more than 20% of near-term earnings may be at risk from Advair generics in the US, where a generic filing may be imminent, and Europe, where patent litigation is underway," it tells clients."Consequently, we view GSK shares as offering a relatively unattractive risk/reward profile."It has the drug group down as a 'sell' with 999p target price. With the housebuilding sector trading at a 30% discount to projected 2010 net tangible asset value Deutsche Bank thinks there are bargains to be had in the sector and has identified Barratt, Persimmon, Redrow and Taylor Wimpey as its top picks. The German bank is expecting the upcoming results season to see a succession of operators report sequential growth in completions, as well as good news on the forward selling front and anticipated selling prices.The key element in eliminating the discount to net tangible asset values is, in Deutsche's view, improvements in operating margins. The main downside risks are political factors, plus the availability and affordability of mortgages, and also economic factors such as the Bank of England interest rate, the unemployment rate and consumer confidence, and political factors.Deutsche rates Barratt Developments, Persimmon, Redrow and Taylor Wimpey as 'buys' in the sector. Price targets for these stocks are:Barratt: 193pPersimmon: 571pRedrow: 168pTaylor Wimpey: 63pNomura doesn't hold out much hope for the UK general retail sector in the months ahead, but thinks Debenhams and Marks & Spencer offer short-term trading opportunities.Retailers have underperformed over the past month, down 2.2% compared with a 0.3% decline in the FTSE All-Share. That's placed the sector at a P/E discount of 2.2% versus the UK market."In our view, the sector will likely de-rate further from here, given limited earnings upgrades," said the Japanese broker. "We prefer to remain stock specific and continue to focus on restructuring, market share gain or strong cash generation."So, it plumps for Debenhams where it believe there exists a "significant" market share opportunity for the department store chain's womenswear through the launch of H! and Principles ranges."With EPS growth of 16% forecast in FY10/11, while trading at a 25% discount to sector average, we believe Debenhams offers a short-term trading opportunity given current sector trends," it says.Marks & Spencer also gets the thumbs up as market share growth and self-help initiatives are beginning to improve, while 'foods & drink' growth has hit 90 basis points."We therefore see a short-term opportunity in M&S given the pullback in valuation and the fact that forecasts for 2010/11 have started to be rebased downwards, and are now well anticipated by the market," thinks Nomura.