Broker tips: SABMiller, Ashmore, underwriters

21st Sep 2010 13:13

Brewing giant SABMiller is to move towards the centralised business model adopted by its multi-national rivals but this could lead to some short term volatility in the business, Nomura Securities believes.SABMiller's chief executive officer Graham McKay said in a press interview that the company would be pressing ahead with the major business capability programme announced last November that will centralise or outsource certain activities."This move towards the standard FMCG [fast moving consumer goods] model indicates a similar strategy to several other global brewers, and in theory the move is not surprising as beer consolidation gets near the end game; however, for SABMiller with the most decentralised of structures, this reflects a major change in business model," Nomura analyst Ian Shackleton cautions,The broker still sees "some headwinds for global beer, both from global beer volumes not returning to historical high levels (5% pa growth 2005-08), as well as increased cost of doing business, especially as marketing levels rise from relatively low levels."It is neutral on the sector on a whole and thinks the SABMiller share price is up with events; it suggests clients should take the opportunity to reduce their exposure when the price is right. KBC Peel Hunt has shifted out of neutral and turned positive in its stance on fund manager Ashmore Group after upgrading its profit forecasts."We confirm that our June 2011 forecasts are upgraded by 12%, primarily due to higher performance fees. Fundamental drivers of the business continue to look positive and support our increased target price of 360p, with our recommendation subsequently moved to Buy," said Peel Hunt analyst Stuart Duncan.The previous price target was 320p.Based on its new forecast of earnings per share of 21.7p in 2011 the shares are trading on a price/earnings ratio of 14.8. The broker notes this is still at the top end of the range for the sector, but thinks this is justified based on the company's growing exposure to emerging market. "To us, Ashmore seems well positioned to take advantage of the increasing amount of assets being allocated to Emerging Market product. Investors are increasingly looking to diversify from Developed Economies and Ashmore has broadened its product range to offer clients more specific options. At the same time, more capital continues to be committed from within Emerging Markets, starting with sovereigns but this trend is expected to broaden to institutions," Duncan said. "By Ashmore's own analysis, they are only part of the way through the development of the business, giving considerable scope for future growth from a number of sources," the analyst added.The buy out of insurer Brit Insurance by private equity should focus attention on the remaining members of the sector, five of which are trading at a substantial discount to asset value, on top of which some also offer juicy yields, FinnCap notes."Catlin is the most liquid, and finnCap's top pick with growing NTA [net tangible assets] and a glaring value anomaly against Amlin which is on a 20% premium," the broker notes.The five stocks FinnCap has identified in the sector as worth looking at are: Company Discount to asset value Div. Yield Catlin 20% 8.1% Chaucer 20% 8.6% Hardy 20% 6.8% Novae 21% 3.7% Omega 24% 8.2% "Novae's yield appears to be smaller, but adding back an expected special dividend of up to 40p in December and the stock would be yielding well over 15%," FinnCap notes. "So there are good opportunities in a sector where there may be too much capital but it is being handed back when not needed, which is good for return on equity."