Broker tips: Hardy, TV companies, Vertu Motors

KBC Peel Hunt expects a strong rebound in the UK television advertising market, and so has initiated coverage of ITV, stv and UTV Media with "buy" ratings for each.The broker's positive stance in the sub-sector is underwritten by the improving trading conditions, although it sees Britain's ITV and Scotland's stv as more attractive than Northern Ireland's UTV Media, given the latter's exposure to the Irish economy."We also set out our core national advertising revenue model for TV, which suggests national advertising revenue growth of around 3% in FY2011 [fiscal 2011] and (a conservative) 4% in FY2012," the broker said.Analyst Patrick Yau sees ITV's stock as undervalued relative to its European peers, but the company offers a "more focused cyclical upswing", reflecting the broker's positive stance on the company's strategy."We believe that ITV offers a more focused exposure to the return to growth in the UK TV market as well as the longer-term turn-around opportunities as the new management strategy is executed," Yau said. The target price for ITV is 71p.Despite stv's long-running legal case with ITV regarding stv's payment for network programming, Yau remains positive on the group's prospects and likes "the company's new media initiatives."Yau says that although stv lacks ITV's scale and broader production base, it "does have a better-developed online strategy, both through its own websites and in partnership with content aggregators such as YouTube. The target price for the Scottish group is 186p.UTV is benefiting from a strong TV and radio performance around the World Cup that has continued into the third quarter. Unlike ITV and stv, UTV's revenues are predominantly made up of radio advertising revenues.However, Yau does not see growth prospects for independent local radio stations as the economic woes in the nation "could well start to erode the fragile recovery there - a situation we will monitor closely." The broker states a "cautious buy" with a target price of 187p.Back on 21 September FinnCap identified Hardy Underwriting as a potential takeover candidate in the wake of the buy-out of insurer Brit Insurer by private equity, and its prediction has been vindicated by news that Hardy recently rejected 300p per share offer from the insurance group Beazley.FinnCap has said that Hardy Underwriting, the specialist insurer operating within Lloyd's of London, has been trading as much as 20% below forecast net tangible assets recently. The Beazley indicative offer represents a significant premium to the recent 230-250p trading range. However, analyst Charles Coyne argues that this clearly undervalues Hardy's long standing attributes.Coyne states that Beazley is "striking at an extreme low point in Hardy's fortunes, a year where it has taken unprecedented losses and its share rating has suffered."Although Hardy's growth has slowed in response to poor pricing, Coyne sees the "heady transformation of the group in recent years continues with the recent opening of a Singapore office", announced earlier this month. The new office seeks to strengthen its Asian credentials focusing attention on the company's diversification into more of a composite underwriter.The broker sees Hardy's 270p net asset value for 2010 as a reference point. "In view of Hardy's historical ability to exceed cost of equity a more appropriate premium may be 1.3 times the net tangible assets, which would give 350p as full value." FinnCap recommends to "buy up to 300p".Vertu Motors has seen a 72.9% increase in pre-tax profit for the half year ended 31 August as it continues to benefit from its successful acquisition strategy.Broker Panmure Gordon has raised its 2011 and 2012 forecasts by 16% and 7% respectively on the back of positive interim results published this morning from the eighth largest UK motor retailer.The broker highlights "the successful integration of acquisitions made last year, with the existing business putting in a robust performance despite market conditions deteriorating during the period."Vertu's latest acquisition came last month, when it purchased two car dealerships in Cheshire for £3.9m, taking the number of its operating sales outlets to 74.The 72.9% increase in adjusted pre-tax profit to £5.2m and 27.3% jump in revenues to £511.1m surpassed the broker's expectations."Cash generation was exceptional leading to net cash at £15.0m being much stronger than our £11.2m forecast with tangible net assets per share advancing from 36.7p to 38.3p during the course of the year."Due to sustainable growth in profits and cash generation, the company has decided to commence dividend payments in January signalling its confidence for future growth.The broker has therefore retained its 'buy' rating with a target price of 60p.