Date: Thursday 31 May 2012
Nomura says that Prudential's acquisition of Reassure American Life Insurance Company (REALIC) from Swiss Re will indeed provide a short-term boost to earnings, but raises some 'strategic questions' for the UK-listed insurance giant.
The broker says that its main concerns is that "it is a closed book transaction that will run off over time (probably over half of the book will run off within the next 10 years). This means that, although it provides a strong short-term earnings boost, this will turn into an earnings drag over the longer term as the book runs off."
"A key question, in our view, is whether Pru will need to make further Admin Re deals in order to replace the reducing earnings going forward and to avoid the earnings drag from the book over the longer term. This begs the question of whether Admin Re is now strategically important to Pru or not."
Peel Hunt has downgraded its rating for technology services group Logica from buy to hold and raised its target price from 95p to 105p following Thursday's bid from CGI.
The broker thinks that the offer is unlikely to be countered as most of the large players in the industry seem inappropriate candidates: "The US players already have strength in European services and Indian pure plays are probably too conservative to take on anything as large as Logica."
Nevertheless, Morland says that the bid "does seem somewhat opportunistic" seeing as though Logica was trading over 100p as recently as March.
UBS has upgraded its rating for FTSE 250 oil and gas group Premier Oil from neutral to buy, saying that the recent underperformance has been 'overdone'.
"Premier Oil has been hit hard in the recent sell-off, and has underperformed the E&Ps [explorers and producers] by 28% over the past three months," the broker said in a research note.
UBS notes that the Huntington and Catcher projects are crucial to meeting these targets, and while the visibility isn't perfect, it believes that both should start on time which would remove a major overhang on the stock.
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