Broker tips: Hikma, Aveva, Helphire

1st Oct 2010 13:24

Some investors may be bailing on pharmaceuticals firm Hikma in the wake of the press speculation about a plan by US regulators to ban unapproved oral colchicine products to treat gout, but Panmure Gordon is sticking by the stock."We note the company's announcement this morning regarding the seemingly imminent withdrawal of the company's colchicine product from the US market. The company reiterated its guidance, and we see no reason to alter our forecasts or thesis which remain intact, preferring instead to use any weakness as a buying opportunity for a stock that is a main player of one of the most lucrative pharmaceutical markets globally," Panmure Gordon analyst Savvas Neophytou said."We continue to find the markets in which Hikma operates very attractive," Neophytou went on to say. "The Middle East and North Africa (MENA) pharmaceutical market is currently worth some US$28bn, and is forecast to experience robust growth in the coming decade. Healthcare in MENA is focusing both on widening access to drugs as well as making a move to combat chronic disorders, which are becoming more prevalent with changing population demographics. Using the average of implied valuations derived from peer group trading comparable multiples, we arrive at our price target of 825p and reiterate our Buy recommendation," the broker concluded.It is time to take profits on engineering software firm Aveva, reckons Singer Capital Markets, after the strong performance by the shares over the last three months."Aveva is a well managed business that is strongly positioned to deliver good returns in a broad based recovery and has a loyal shareholder base. However, we believe estimate momentum will play a crucial role in sustaining the re-rating the company has seen recently. Given planned investments in Aveva Net and the modest pace of recovery in its markets, we believe it is difficult for the company to beat what appear to be some aggressive market expectations near-term," states Singer analyst Tintin Stormont.Using Singer's projected earnings for the year to March 2011 the shares are trading on a price/earnings ratio (excluding cash) of 24, suggesting that the "shares have run too far ahead". Singer is now a seller, having previously considered the shares fair value, though it has pumped up its target price to 1250p from 1060p.Results from Helphire have been well received by the market but FinnCap is staying neutral on the accident management specialist until it sees how the company's new business model is performing."In our view, a fundamental element to the investment case is the switch in the business model to reduce 'frictional costs' on case handling, essentially reducing Helphire's gross margin in return for much improved cashflow through earlier payment and offset by savings in operating expenses," argues FinnCap analyst Mark Paddon."The testing of these protocols has been underway now for several months and today's statement points to an increase in the proportion of cases under the test from 13% to 20%. However there is no new news on the progress of these tests other than a general comment that they 'remain encouraged'," Paddon notes.Though the share price has reacted positively to the full-year results announced on Friday, FinnCap thinks that earnings forecasts for the current financial year are more likely to be lowered than raised, given that the company highlighted in July that it was experiencing more difficult trading conditions. These will not have had much of an impact on the company's business in the first quarter of the current fiscal year, as this is traditionally a quiet one for the company, but if the trend continues for the rest of the year "we would need to downgrade our forecasts despite the fact that much of the forecast uplift in profitability in 2011 is full effect of the cost saving from the restructuring programme," Paddon warned.The broker is sticking with its "hold" recommendation and 40p target price, seeing little scope for outperformance over the short term.