LONDON Broker Recommendation Round up

Broker tips: GSK, Man, Thomas Cook

Date: Thursday 27 May 2010

While other blue chips participated in the market rebound on Thursday morning the performance of drugs giant GlaxoSmithKline (GSK) was lacklustre after news emerged overnight that the US Food and Drugs Administration (FDA) has raised an alert over one of GSK’s drugs, but Panmure Gordon thinks the FDA request could provide a buying opportunity.

The FDA has reportedly revised the label information for two kinds of weight-loss drugs to include new safety information about rare cases of severe liver injury, though it stopped short of claiming categorically that Glaxo’s over the counter drug Allie and Roche’s prescription drug Xenical cause liver damage.

Panmure Gordon notes that only £96m of the £350m of revenue generated last year by Alli was in the US, so the FDA’s decision is unlikely to have a calamitous effect on profits.

Panmure Gordon has reiterated its “buy” recommendation and price target of 1400p. With a dividend yield of 5.6% based on projected 2010 dividend payments and a compound annualised growth rate in earnings per share of 6.8% “we believe that most of the risks are adequately reflected in the price,” the broker concludes.

Man Group has been hovering near the bottom of its recent trading range, making the shares a “clear buy” for investors who view GLG as a good strategic fit, reckons Singer Capital Markets.

Hedge fund manager Man, which published slightly better than expected final results Thursday, said last week it is paying $1.6bn for New York-listed rival GLG Partners.

Singer points out that GLG’s performance has been strong in their flagship funds and Man will be buying this business pretty much at performance fee highs.

Man’s flagship AHL fund is up 3.5% in the year to date and, if the recent performance is sustained, management believe this will bode well for a substantial uplift in private investor sales.

A 27% slump in profits and drop in assets under management to $39.4bn have already been written into the share price.

Singer repeats ‘buy’ advice and 300p target price.

The risk/reward balance at travel group Thomas Cook is now more attractive in KBC Peel Hunt’s view, prompting the broker to upgrade the shares after their recent underperformance.

“The shares have underperformed the market by 12% over the past month and have fallen by 27% in absolute terms since the beginning of April. While the economic backdrop is challenging, the refinancing and the diminishing threat of ash disruption means the risk profile has improved,” KBC analyst Nick Batram believes.

The broker has upgraded the stock to “buy” from “hold” given that the stock is now trading below eight times projected 2010 earnings per share. In a “better” market the broker would expect the shares to trade on a price/earnings ratio of at least 10.