Broker tips: Imperial Brands, Poundland, Astrazeneca

The Canadian bank said Imperial’s expected full-year 2017 dividend yield of 4.9% is the highest in its coverage and particularly attractive in the current low-yield environment.

RBC pointed out that since 2008 Imperial has delivered a dividend compound annual growth rate of 12%, consistently increasing its dividend per share by over 10% each year.

“We believe Imperial has become a stronger and more reliable business and expect increased exposure to the US, improved cash generation and deleveraging to underpin its investment grade credit rating as well as the current dividend policy.”

RBC said the US market represents an attractive opportunity given its size, high affordability and solid price dynamics.

That said, the bank noted it was still early days and it will look for more supporting evidence that the Winston and Kool brands acquired by Imperial are on a sustainable trajectory.

Deutsche Bank downgraded Poundland to ‘hold’ from ‘buy’ but lifted the price target to 205p from 180p.

“Due to recent share price appreciation we now see limited fundamental upside and since Steinhoff does not like to ‘pay for synergies’ we therefore downgrade,” the bank said.

On Wednesday, Steinhoff International confirmed it was considering a possible offer for the entire issued share capital of the London-listed discount retailer. The announcement was made without the consent of Poundland, which responded by issuing a statement advising its shareholders to take no action.

Steinhoff confirmed on Thursday that it has built a 23% stake in Poundland, which DB said has led to a significant expectation the business will be acquired in its entirety.

“Steinhoff’s strong balance sheet, interest in the discount segment and other factors make a bid more likely than not.”

Deutsche Bank noted the company’s full-year results on Thursday were “materially in line with consensus expectations”.

It said momentum remains disappointing with like-for-like sales declines in 1Q17 expected to continue.

DB argued that the integration of the 99p Stores has effectively become more expensive due to higher capex and working capital needs, while synergy guidance is unchanged.

“The incoming CEO gave some initial thoughts on priorities but insufficient to give us much greater comfort in a recovery in 2H and we lower forecasts 6-10%,” the bank said.

HSBC reiterated a ‘hold’ rating on Astrazeneca after the US consumer watchdog increased its drug safety warning of the risk of acute kidney failure for the SGLT-2 inhibitors Farxiga and Invokana.

The US Food and Drug Administration (FDA) has revised the warnings in the labels of the oral drugs used for type II diabetes to include information about acute kidney injury and added recommendations to minimise this risk.

HSBC said Farxiga, produced by Astrazeneca, is likely to be competitively disadvantaged.

“We continue to forecast peak sales of $2.6bn in 2023e for Farxiga (excluding the fixed dose saxagliptin/dapaglifozin combination). Farxiga accounts for 549p of our 4,240p discounted cash flow-derived target price,” HSBC said.

Type II diabetes prescription medicine Jardiance was excluded from the FDA’s warning, the bank noted. The drug is already widely expected to get the addition of cardiovascular benefit included on its label following an FDA Advisory Committee decision on 28 June.

“The exclusion of Jardiance from this latest warning announcement by the FDA should strengthen Jardiance’s competitive position within the SGLT-2 class, as the benefits seen with this drug appear to be due to the individual molecule, rather than a class effect.”