Broker tips: Pru, BSkyB, N. Brown

The determination by the management of Prudential to boost the company's presence in Asia may pay off in the long term for the insurer but Nomura Securities thinks that insurers with a greater UK focus than the Pru may do better in the near to medium term.Although Nomura agrees with the conventional wisdom that Asia offers more growth in the long term, analyst Nick Holmes thinks the market is underestimating the UK's medium term prospects, "which are likely to see cash earnings materially boosted by lower new business strain (consequent upon the retail distribution review and benign annuity pricing) and the potential release of annuity credit provisions."Nomura prefers Legal & General (L&G) and Aviva to the Pru, and rates both of them as worth buying, whereas Prudential has no more than a neutral rating. Although it continues to regard Prudential's Asian franchise as "highly attractive" Nomura recognises this is already factored into the price.Nomura is expecting a slow down in Prudential's sales after the company had a strong second half to 2009, and said this trend was already evident in the first quarter 2010 figures, which were lower than the final quarter of 2009."Both L&G and Aviva are undervalued by the market and have a higher likelihood of providing positive earnings surprises than Prudential. Consequently, they remain our top picks," Nomura concludes. There is a high probability of News Corp coming back to British Sky Broadcasting (BSkyB) with an offer on or north of 800p per share, but because of regulatory risk the shares are likely to trade below this level, Panmure Gordon reckons.Even so, the broker thinks the bid approach (announced on Tuesday) is "massively bullish" for the sector and could perk up interest in terrestrial TV operator ITV and advertising firm Aegis Group.Panmure has bumped up its BSkyB target price to 750p in the wake of the pay TV firm's rejection of a 700p share offer from 39.1% shareholder News Corporation. It has upgraded the shares from "sell" to "hold".The main decision BSkyB shareholders have to make is whether to sell in the market now or hang on in the hope that a better offer materialises and, furthermore, that any such bid is cleared by the authorities."At issue is cross-media ownership given that News Corp is the parent company of the Sun and The Times. Common-sense tells us that a deal is likely to get through, however the duration of a review is hard to call. This is why the shares will trade at a meaningful discount to the offer price," Panmure analyst Alex DeGroote suggests.The acquisition of online retailer Figleaves by Internet and catalogue home shopping company N. Brown should be earnings neutral in the first year of ownership, but should boost 2012 profits, KBC Peel Hunt reckons."The acquisition will cement N Brown's position as the leading on-line retailer of lingerie. Given the enhanced scale and existing brand relationships, we would expect improved buying margins for the combined entity," investment analyst John Stevenson said. "In addition, N Brown is well placed to cross-sell its other product categories (such as footwear or home goods) into the Figleaves customer file. There is expected to be a three-month review to assess integration potential, although there is clearly a logic for N Brown to operate the distribution function over the medium term," Stevenson added.The broker is also curious whether Figleaves will bring any enhancement to N Brown's internet retailing knowledge base.KBC, which rates N. Brown shares as a "buy", has left its 2011 earnings estimates unchanged but has bumped up its profit before tax forecast for 2012 by around £2.5m to £108m."Trading on a FY2011E PER [price/earnings ratio based on estimated 2011 earnings] of 10x, backed by an attractive dividend yield and scope for further acquisitions, N Brown is another specialist retailer set to grow sales and earnings despite the tougher outlook for consumer spending," KBC reckons. Panmure Gordon is another broker getting busy with the pencil and rubber eraser. It too thinks the acquisition will be earnings neutral in 2011 but expects 2012 operating profit will be some £2m to £3m better as a result of the acquisition. "The acquisition has multiple positive aspects. 1) It gives NBrown exposure to younger more 'premium' demographic group. 2) It is a continuation of the internet sales growth strategy 3) The NBrown team will be working with Figleaves staff; people who are used to pure play e-tail. They could learn a lot. 4) The business is international and delivers to more than 100 countries including the US. This is useful for BWNG who have been in Germany for just over a year are launching in the US this summer. 5) Figleaves gives NBrown additional exposure to a cash only business," said Panmure analyst Jean Roche.Panmure Gordon rates the shares a "buy" and has named it as one of its key retail picks for 2010. The price target has been edged up to 320p from 315p.