Broker tips: AstraZeneca, B&M, Ultra Electronics

Jefferies upgraded its stance on shares of AstraZeneca to 'buy' from 'hold' on Tuesday saying the pharmaceuticals company’s impressive revenue and profit trajectory is compelling relative to EU peers, with improving quality of earnings and cash flow generation set to ease concerns.

The bank, which hiked the price target to 8,850.0p from 8,250.0p, also said that with the approaching close of the Alexion acquisition, the deal's strategic merits are set to be more widely appreciated.

Jefferies said it's slightly more optimistic than consensus in strong ongoing momentum from key oncology growth drivers Calquence, Imfinzi, Lynparza and Tagrisso.

It also said weak US Phase III Covid-19 vaccine data may provide a buying opportunity.

"Upcoming US Phase III data for Covid-19 vaccine C19VAZ (AZD1222) could look relatively underwhelming due to a sub-optimal 4-week dosing schedule used in the study," it said. "A negative stock reaction to headline results from the US study could represent a buying opportunity, in our view, because it has already been shown that the vaccine works better with a longer dosing interval."

Primary analysis of the Phase III clinical trials from the UK, Brazil and South Africa showed 62% efficacy when given as two standard doses with an interval of between four and 12 weeks, but vaccine efficacy increased to 82% with an inter-dose interval of 12 weeks or more, Jefferies noted.

Analysts at Berenberg initiated coverage on discount retailer B&M at 'buy' on Tuesday, stating that the group had been and appeared set to remain a "Covid-19 beneficiary".

Berenberg said it believes B&M will be a post-Covid-19 winner, offering one of the strongest top-line growth and return on invested capital profiles in European retail, while its cash-generative business should also support additional capital returns.

"We believe the recent share price pullback has provided an attractive entry point into a structural winner," said Berenberg, which issued the stock with a 600.0p target price.

On the German bank's estimates, B&M trades on a 15.6x 2022 price-to-earnings ratio, something it branded "a justified premium to UK and European retail peers" given its superior ROIC and scope for additional capital returns.

Berenberg also stated market share and customer gains would support B&M's growth step-up, with consensus estimates expecting the group to deliver roughly 21% like-for-like growth in 2021.

The analysts acknowledged this creates "a challenging comparable", but they also believe the growth step-up can be sustained, supported by four growth drivers - the outperformance of the value retail market, market share gains from underperforming value retail peers, incremental customer gains and space growth providing roughly 5-6% growth per annum.

Analysts at Barclays stuck to their 'equalweight' recommendation for shares of Ultra Electronics, despite what they termed the defence specialist's "solid" full-year performance across 2020.

In Barclays' opinion, the shares' premium rating versus defence peers in the European Union meant that "upside" from backlog growth had already been priced in.

Furthermore, while the bank upped their 2022-23 earnings per share estimates by 5%, cash was expected to be subdued on account of the firm's investment activity.

Barclays' 2,200.0p target price was unchanged as well, with the stock trading at an estimated 23% premium versus EU defence peers on 2022 EV/EBIT basis.

The analysts also pointed out the strong performance seen in Ultra's maritime end markets, something it said was a reflection of the heightened underwater threat environment.