Broker tips: Diageo, EnCore, BTG

Charles Stanley described in-line full-year results from drinks brands giant Diageo as 'resilient' and the broker thinks trading should continue to improve gradually in line with the recovery in the global economy.

"Long term prospects remain good, given the unrivalled portfolio of premium drinks brands and distribution network. Prospects in emerging markets appear particularly good, given the growing number of middle-class consumers who aspire to drink international premium spirits brands," avers Charles Stanley investment analyst Sam Hart.

"The group is well diversified by geography and product, is highly cash generative and has a sound balance sheet," Hart added, making the case for the broker's "accumulate" recommendation.

"We expect the group to continue to deliver solid growth in underlying earnings and dividends, whatever shape the global economic recovery takes," Hart said, though earnings estimates for 2011 and 2012 have been trimmed by around 1.5%, reflecting a slightly more subdued economic environment than previously anticipated.

On projected fiscal 2011 earnings per share of 80p, the price/earnings multiple of 13.3 is a reasonable one, Hart maintains and represents a small discount to sector peer Pernod Ricard.

The winning streak has continued at EnCore Oil with another major North Sea find, offering Westhouse Securities an opportunity to reiterate its 'buy' recommendation. The broker will be revising its target price in due course.

EnCore Oil has announced an update on the Cladhan appraisal well, in which it has a 16.6% interest, located in the UK northern North Sea Blocks 210/29a and 210/30a. The drilling encountered a gross hydrocarbon column of 159ft, with 102ft of net hydrocarbon pay, with no oil water contact observed.

"This has been an extraordinary summer of drilling activity for EnCore. Having already made the Catcher discovery, today's announcement indicates that Cladhan is also a major North Sea find. With the drill stem test and second sidetrack to follow, as well as additional drilling expected later this year at Catcher, we anticipate further positive news flow from the company in the second half," the broker said.

Daniel Stewart has upped its current year product revenues forecast for BTG after the specialty pharmaceuticals company signed another agreement with US outfit Nyomed.

Under the terms of the agreement BTG will gain access to Nycomed's market data, customers and sales force, and from 1 October 2010 BTG will have exclusive rights to market and sell the products.

In return, BTG will pay Nycomed up to £10.3m, the precise amount depending on the amount of product delivered to and sold by Nycomed before 30 September 2010. Daniel Stewart's educated guess is that the final amount will be £9m.

"As a result of this agreement, we now anticipate that product revenues for the current financial year will be £9m higher than previously forecast (£97m vs. £88m previously)," said Daniel Stewart analyst Vadim Alexandre.

"The increase in revenue is expected to flow directly into gross profit, as full manufacturing costs have already been included in BTG's expectations," Vadim observed.