Broker tips: AstraZeneca, WPP, Aviva, IAG

Analysts at Deutsche Bank reiterated their 'buy' rating and 6,900p target price on British-Swedish pharmaceutical outfit AstraZeneca on Monday.

With first-quarter sales and EPS 3% and 5% ahead of consensus, as well product sales trending "well above" management's guidance for high single-digit growth for 2019, Deutsche lauded the group's "strong start" to the year.

Deutsche said AZN's strong performance was "broad-based, with solid performance across the portfolio", thanks, in part, to its "very strong emerging markets sales".

Most importantly, the German bank highlighted the substantial year-on-year improvement in Astra's pre-collaboration/other income margins, something which it felt had "significantly exceeded expectations".

Although the investment bank noted that AstraZeneca's guidance remained unchanged and consensus changes were likely to be "modest at this stage", the analysts believed the firm's performance was "likely to provide comfort to investors" over its ability to meet consensus expectations for medium-term margin improvements.

"This should ultimately lead to substantially improved cash-flow generation, easing fears raised by the recent equity raise," said Deutsche, which kept AZN as its top pick due to its high visibility above peer group growth.

WPP got a boost on Monday as Barclays upped its stance on shares of the advertising giant to 'overweight' from 'equal weight' following the company's first-quarter trading update last week.

Barclays, which lifted its price target to 1,100p from 1,000p, pointed to the Kantar disposal, "some confidence" in management's ability to turn the business around, the stock's valuation and the fact that organic growth is "not getting worse".

The bank noted that first-quarter net sales were very much in line - albeit at a lowly -2.8% level, while management re-iterated its FY19 targets with more confidence. It expects the Q2 organic performance to be similar to Q1 before better numbers in the second half.

"Q2 can still be seen positively, however, if all the other agencies report decent numbers as expected," it said.

Barclays also pointed to the fact that WPP is selling Kantar and starting a buyback, which it reckons will be another catalyst for the shares.

The bank said management's turnaround strategy - a simpler structure, lower margins to invest in talent, and a focus on creativity and technology - looks "sensible".

Finally, the bank argued that the shares are very cheap.

"On a relative price-to-earnings basis, WPP is close to an all-time low and we would argue that the shares are pricing negative growth rate and margin contraction forever."

Investors should buy shares in Aviva to benefit from the insurer’s strengthening balance sheet, Jefferies analysts said.

Aviva is the insurer most sensitive to changing life expectancy assumptions and more people dying could be worth 11% of the company’s market value, Jefferies’ Philip Kett and Mark Cathcart said. The analysts kept their ‘buy’ recommendation on the shares and nudged up their price target to 520p from 500p.

The question for the FTSE 100 company is whether it releases reserves freed by higher death rates quickly, over time, or holds onto the money to weather financial market risk and protect its dividend.

“To our mind, Aviva should take this opportunity to bolster its balance sheet strength,” the analysts wrote in a note to clients.

“Aviva is undergoing a revolution in its balance sheet strength that will leave the group with more equity, less debt and more prudent asset and liability valuations than consensus expects, thus ensuring long-term dividend sustainability.”

UBS bumped up its rating on shares of British Airways and Iberia parent International Consolidated Airlines Group to 'buy' from 'neutral' on Monday as it argued that share price pressure is now overdone.

The stock is trading close to trough multiples, meaning the probability of it de-rating further is low, UBS said.

In addition, it said the summer demand environment should be supported by less geopolitical uncertainty in the UK, while an improved trend on North Atlantic pricing in the second quarter and European capacity discipline over the summer gives the bank confidence in its positive full year pricing of +2% versus market implied of -2%.

UBS also highlighted potential for further industry consolidation that would aid the industry outlook and noted a material dividend payable on 8 July.

The bank cut its 2019/20 earnings per share estimates by 9% due to changes in currency, yield outlook, fuel price and the IFRS 16 impact.

"While we now see 2019 estimated EBIT below 2018 levels we think our forecasts are conservative and if IAG sees a strong summer season that estimates will see upside risk.

"Indeed if the 2019 estimated EBIT is below 2018 this would be the first year since IAG’s formation where profits are down year-over-year. We think UBS estimates are below consensus given that the market still needs to adjust for IFRS16 and recent oil price change."

UBS has a 705p price target on the stock.