Broker tips: Vodafone, Standard Chartered, Ashmore

14th Oct 2010 13:01

Positive earnings momentum for Vodafone has seen Nomura Securities upgrade its earnings per share forecasts for the telecoms titan by 5-6%. "Strong cost reductions should drive organic earnings before interest, taxes, depreciation and amortization inflexion in the second half (+2% year-on-year) and in the 2012 financial year (+2.8%) though the step-up in customer investment still distorts first half margin", says analyst James Britton. The broker predicts a 2010 operating profit 2% ahead of consensus at £12bn for the mobile telecommunications service provider, with £12.5bn forecast for 2011 and 2012, 5% of market expectations."Vodafone's tax efficiencies deliver cash tax saving of circa £1bn per annum. Treasury has lowered its financing rate below 4% (sector average 6%)," Britton notes. The broker says it is time to appreciate the benefits of Vodafone's size with these "large company' benefits" supporting premium cash conversion and a premium rating.The group's joint venture with Verizon Wireless has seen good momentum, allowing guidance to be raised. Britton said that an improved outlook for dividend payments from the joint venture "will lead to a step-change in Vodafone's cash flow".The broker has reiterated its 'buy' recommendation and price target of 200p.Nomura is also bullish on banking giant Standard Chartered despite stricter capital requirements for banks.Standard Chartered yesterday announced a 1-for-8 rights issue to raise about $5.1bn, around 13% of its market capital, to prepare the bank for the Basle III requirements.The company intends to issue the shares at 1280p on the basis of 1 new share for every 8 held. The broker says this reduces return on equity by 1.5% in the near term and decreases earnings per share in 2011 by $0.11.The rights call accompanied a trading update which said income in the third quarter was above the first half run rate.Analyst Raul Sinha commented: "We think that the group remains well positioned to benefit from organic growth in the Far East and that the rights issue does not significantly dilute the group's return profile.""The group indicates that this is a pre-emptive measure to preserve organic growth in an environment where its lead regulators might accelerate the implementation of higher capital requirements."The broker confirms its 'buy' rating with a target price of 1920p. Higher than expected investment inflows have forced brokers to review their target prices for fund manager Ashmore.The emerging markets asset manager revealed an 18% increase in assets under management (AUM) to $41.6bn since June, driven by good investment performance and strong net inflows.Singer Capital Markets' forecast of $39bn was overtaken, with inflows already amounting to over 60% of its full year estimate just in the first quarter.Ashmore's net inflows of $3.4bn were more than three times the broker's estimates of $1bn, with the Asian retail investor-focused products contributing largely. Singer said "redemptions have decreased substantially (from the peak of 40% in 2009 to around 14% at present we estimate) which is, in part assisting net sales growth."The broker's target price of 360p and 'buy' is currently 'under review'.Ashmore's AUM figure also surpassed KBC Peel Hunt's expectations, with the broker's year-end forecast at $43.1bn.Analyst Stuart Duncan said the group "has, justifiably in our view, performed well over the last three months. The shares have now risen by 12% over the last month (+35% over 3 months)".KBC also has a target price of 360p, and its rating is 'under review' too.