Broker tips: Sage, Alliance Pharma, JJB Sports

2nd Dec 2010 12:47

Sage's subscription revenue growth has led Nomura to expect solid execution next year from the blue chip accountancy software firm.Sage reported "robust subscription revenues growing at 3%" in the second half versus the broker's expectation of 1%. Nomura notes that a growth of around 4% is achievable in 2011.In the medium term, the broker expects margins moving towards the late 20s, and sees a substantial improvement in earnings growth going into 2012.A target price of 295p is confirmed, along with a 'buy' rating.Low operating costs and high margins has led finnCap to initiate a 'buy' recommendation for Alliance Pharma as the readily scalable and profitable business has the potential to add to its product portfolio.The pharmaceutical company's portfolio of products provide gross margins of over 55% and the low operating cost business model results in operating margins of about 30%, says the broker.With a cash-generative business meaning that debt is not an issue, the group demonstrated its confidence in the future by issuing its maiden dividend paid last year.The broker notes that Alliance currently trades at a discount to its pharmaceutical peers on profitability ratios and therefore initiates its coverage with a target price of 41p, and a 'buy' recommendation.Panmure Gordon is reviewing forecasts for JJB Sports following the group's downbeat trading update and outlook statement Thursday."Continued difficult trading conditions" have prompted the sports retailer to report that it will likely breach certain financial covenants when they are next tested in January 2011.Like-for-like sales remain below the company's expectations as it added adverse weather conditions to the list of risks to trading."Future financing of the business is now in question and we therefore expect the shares to be very weak today", says analyst Jean Roche as the covenant breach/funding shortfall has led the company to explore further business restructuring options and consider alternative sources of finance.The broker's forecasts, the target price of 6.50p, along with its 'hold' rating, have been placed under review.