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Broker Round-up: AstraZeneca, Kromek, Optos, Wentworth Resources, Paddy Power, Mothercare, Plus500

Broker Round-up: AstraZeneca, Kromek, Optos, Wentworth Resources, Paddy Power, Mothercare, Plus500

AstraZeneca (LON:AZN) shares have performed the worst out of Britain’s three biggest listed drugmakers in 2013.

And that is set to continue if you listen to the advice of Citigroup, which has a ‘neutral’ stance and £35 price target on the stock against the current price of £33.76.

But comments about its drug pipeline for cancer gave the shares a 2% boost today, with the broker pointing out the “unappreciated” potential to generate $7bn a year.

“The market ascribes minimal value to the potential of AZN’s extensive and growing cancer pipeline and the longer-term potential of Brilinta (cardiovascular),” said analyst Andrew Baum.

So why not buy the shares now?

Baum reckons downgrades to earnings forecasts are likely and suggests those looking for an uptick might have to wait until the end of 2014 to see any substantial return on their investment.

That’s the date when heart drug Brilinta’s Pegasus trial results are expected to be released. Baum thinks there is a high probability of success and believes the trial will convince cardiologists about the drug’s safety despite the US Department of Justice’s upcoming investigation.

By 2014, the focus will shift to M&A activity as Astra’s early stage pipeline matures, the Citi analyst adds.

“We believe that AZN has assembled a very significant and much under-appreciated early stage pipeline through its frenetic business development activity in its core areas of oncology and respiratory medicine,” Baum said.

“We anticipate that the CEO’s attention in 2014 will move towards M&A to offset the impact of the anticipated genericisations over the next three years.”

Panmure Gordon kicked off coverage of x-ray imaging specialist Kromek (LON:KMK) with a ‘buy’ rating and 92p target price.

That is some 20p higher than the current price and almost double the price it floated at last month.

Its target price implies a valuation of £105mln, which boosted shares in tech investor Amphion Innovations (LON:AMP), its 11.6% shareholder.

It rose 21% to 5p, taking its market capitalisation to £7.3mln.

Panmure was also eyeing up shares in Optos (LON:OPTS), upgrading the eye-scanning specialist to ‘buy’ from ‘hold’.

It asks whether the decent outlook prompts an end to the cycle of downgrades that the company has suffered.

The broker takes comfort in the simpler balance sheet and business model, lifting its target price to 206p.

“Overall, Optos should be a core holding to investors looking to have healthcare in their portfolio,” Panmure argued.

“We believe investors should be willing to pay at least 15x for the company’s earnings.”

The shares are currently trading for 156p.

It also has a ‘buy’ tag on Wentworth Resources (LON:WRL) and a target price of 70p, compared with the current going rate, which is 46p.

That’s following an oversubscribed new share offer, which Panmure sees as a further indication of demand and suggests “investors share our excitement for what could prove a transformational period for Wentworth”.

The $6mln generated will go towards strengthening the company’s balance sheet as it develops the Mnazi Bay gas project in Tanzania and kicks off a busy exploration programme in East Africa.

Paddy Power’s (LON:PAP) profit warning was nothing to fear, according to Numis Securities, which sticks by its ‘buy’ recommendation on the Irish bookie.

“If there have to profits warnings let them always be from companies which are growing strongly and which have almost indecent amounts of spare cash – like Paddy Power,” it said.

“Increased competition in the UK online gambling market is a concern, but is unlikely to be sustained for long in our view.”

The broker also topped up its target price for baby-to-maternity wear retailer Mothercare (LON:MTC), whose interim results came in as expected.

The target price is now 475p from 450p, suggesting a 75p rise from the current price following today’s 4% fall.

CFD trading specialist Plus500 (LON:PLUS) pleased Liberum Capital with its bullish trading update.

Market conditions have played into the company’s hands since its recent flotation and Liberum’s new target price of 275p, which is some way above the IPO price of 115p.

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