Broker tips: Vodafone, Indivior, Tui

With the bulk of the group performing well, analysts at UBS reiterated their stance on shares of Vodafone on Tuesday, highlighting how the telecommunications giant's organic service revenues ended the fourth quarter ahead of analysts' estimates.

With top-line trends in-line or ahead at the majority of its business units - aside from "light" activity in Spain - the broker said that "overall growth drivers for Vodafone remain intact", with mobile data monetisation feeding through in most markets, strong growth in broadband and market share gains in Enterprise.

Vodafone saw organic service revenue grow 1.4% over the final three months of the last trading year and combined with cost savings (consensus: 1.1%), UBS thinks the firm can continue to deliver mid-single EBITDA growth per year going forward.

Looking at the negatives, UBS said, "Expectations for Italy are low given the expected entry of Iliad into the Italian mobile market, but with Spain also likely to see negative organic service revenue growth, consensus is likely to factor in close to 0% service revenue growth for Q1/Q2."

"We reiterate our view that the bulk of the group is performing well and will benefit from cost savings," UBS said as it doubled down on its stance on Vodafone, reiterating its 'buy' recommendation and 270p target price for the shares.

Despite a strong run in its shares, Citi still saw potential upside from the delay of generic versions of Indivior's Suboxone beyond 2018, but still warned of "conservatively modelled generic competition".

The entry of Par Pharmaceuticals generic Suboxone film to the market, as a result of the legal settlement which allows the rival to begin selling its version on 1 January 2023, or earlier under certain unspecified circumstances, remains somewhat uncertain.

However, the bank felt that a launch "at risk" was unlikely following the appeal lodged by Indivior against a group of drug companies to settle litigation over patent infringement of its Suboxone opioid addiction treatment.

Nonetheless, it noted that the company's valuation was "highly sensitive" to peak sales assumptions for the opioid addiction product, which was launched in February.

Indeed, a delay to 2023 would give 109p of upside, on its estimates, Citi said.

The broker also noted that the success of the Sublocade roll out "is key to the company's future", although the success of that roll-out would not be known until the second quarter.

"With IMS data not fully captured, tracking the success of the launch will be difficult and investors will have to wait until 2Q18 results for reported sales and key performance indicators," Citi's analysts said as they downgraded their stance on Indivior to 'neutral' from 'buy' and issued it with a 500p target price.

Analysts at Credit Suisse reiterated their 'neutral' recommendation for shares of TUI, arguing that the best for the company's 'cruise story' now lay behind it, while pointing to the 'hard to justify' premium versus Thomas Cook Group that the shares were trading on.

Yes, a bigger fleet size had brought with it economies of scale and efficiency gains, the Swiss broker said, allowing the company to increase its share of the German market by 20 percentage points over the five years ending in 2018.

But industry growth out to 2022 would likely entail weaker pricing, leaving the company with fewer growth levers to pull.

As well, by 2023, even the company's own forecasts were for the German market to become the most highly-penetrated in the world.

And no, unlike its larger 'pure-play' cruise rivals, it was less able to tap into the full range of potential growth markets, particularly Asia Pacific.

In terms of valuation, at then-current prices, the shares were discounting a 2019 EV/EBIT multiple of 7.2 for its core tour operating business, 20% more than over at Thomas Cook.

Credit Suisse did bump-up its earnings per share estimates for the company in 2019 and 2020 by 5% - following its first-half numbers and the Capital Markets Day for its Cruise unit - resulting in an increase in the shares' target price from 1,645p to 1,730p.

Yet for all of the above reasons, its recommendation was kept at 'hold'.