Broker tips: Whitbread, Aviva, Rotork

Andy Harrison, chief executive officer (CEO) of easyJet, should inherit a company in robust shape when he takes over as CEO of restaurants and hotels group Whitbread in late November.

Charles Stanley approves of the appointment and thinks his 'experience of yield management and international markets will be useful for Whitbread.'

The broker has left its earnings forecasts unchanged following Whitbread's trading update on Thursday 'although we believe forecast risk remains on the upside.' Nevertheless, the broker rates the shares as no more than a 'hold' at this price but would be inclined to add shares if the price weakens.

KBC Peel Hunt is more bullish. 'Positive momentum in Q4 [fourth quarter] was no surprise and we expect this to continue through 2010, despite the tough backdrop. After significant outperformance there may be a pause for breath in the short term but Whitbread remains a core investment in the sector,' according to KBC analyst Nick Batram.

Panmure Gordon recommends that Prudential shareholders unnerved by the Pru's blockbuster deal to acquire AIG's Asian assets should switch into Aviva.

The broker said Aviva's 2009 results were well ahead of consensus and above the top end of the range for Market Consistent Embedded Value (MCEV) and International Financial Reporting Standards (IFRS) operating profit.

'MCEV Operating profit at £3483m (+3%) was 13% above consensus, whilst IFRS operating profit at £2022m (-12%) was 8% above consensus,' Panmure Gordon said, adding that the final dividend of 15p was also slightly ahead of expectation.

'The Life operation was the star performer driven in part by improving new business margins that increased to 2.2% (2008: 2.1%) on a PVNBP [present value of new business premiums] basis. Specifically the UK life operation new business margin at 2.8% (2008: 1.7%) was impressive benefitting from a favourable product mix (away from bonds into annuities and term assurance). Lapses have increased but the impact has been offset by better mortality,' the broker said.

The stock is Panmure Gordon's top pick for 2010 among the UK insurance heavyweights. 'Our preference of Aviva over Pru stemmed from the valuation gap that emerged between the two companies in Q4 2009. Pru's bid for AIA has created investment risk for shareholders demonstrated by the 20% fall in share price in the two days following the announcement of the deal. We see the increased investment risk set to continue in Pru and as such recommend a switch from Pru into Aviva,' Panmure concluded.

The broker has a target price of 526p for Aviva.

KBC Peel Hunt has taken Rotork off its sell list after the engineer's results earlier this week.

The broker has bumped up its 2010 forecasts substantially and is now predicting profit before tax of £97.7m, compared to £79.1m previously and a market consensus of £88m, and underlying earnings per share of 79.3p, up from 64.2p previously (consensus: 75.3p).

'Our previous stance was based on a bearish top down scenario playing out for Rotork in 2010. While the group year-end order book of £129m is down 17% organically YoY [year on year], management are of the view that the group will deliver low to mid single digit organic revenue growth in 2010,' KBC analyst Jonathan Hurn said.

Hurn is assuming 3.6% revenue growth 'accompanied by profit drop through on a group wide basis of 32% and in line with the historic trend.'

The broker has upgraded the stock from 'sell' to 'hold' and has cranked up the price target to 1400p from 1100p.