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Broker Roundup Part 2 including Carnival, Providence Resources, Arian Silver, Metminco, Alliance Pharma and Stanley Gibbons

Published: 15:56 16 Jan 2012 GMT

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Analysts from Wall Street bank Citigroup said mining firms would now have to "sweat it out" to deliver shareholder returns having been given a free kick because of surging commodity prices over the past decade.

"This is likely to drive significant alpha in the sector rather than the large beta trade that we have seen," it said.

Management and portfolios with proven track records are better positioned to continue delivering sustainable value through the cycle, highlighted Citi.

"We have looked at what is being priced in and believe the best risk adjusted returns over the next five to ten years will be Rio Tinto (LON:RIO), ENRC (LON:ENRC), Glencore (LON:GLEN), Randgold (LON:RRS), Petropavlovsk (LON:POG), Kazakhmys (LON:KAZ) and Nyrstar. Potential laggards are Norsk Hydro (LON:NHY), Aquarius Platinum (LON:AQP), Lonmin (LON:LMI), Hochschild (LON:HOC), and Talvivaara (LON:TALV)."

In another note, called Monday Mining Minutes, Citi analysts expressed their view that the worst point in the global resources cycle had now been passed.

"While Europe has been weak and should remain weak for some time, the USA is not as weak and Emerging Markets are still expected to grow well in excess of developed markets in 2012," it said, adding that those EM markets were now likely to now put a floor under commodity prices.

Meanwhile, Espirito Santo has upgraded security firm G4S (LON:GFS) to 'buy' from 'neutral' on positive outlook for growth - notably the  2012 Olympic contract.

"According to 2011 press reports, G4S has been asked to increase the number of security personnel provided for the Olympics to over 10,000 staff.

"In our view, it is still unclear what profit impact this will have for the group, particularly given potential advertising cost offset, but it consequently seems highly likely that our forecast of £130 mln contribution to FY2012 revenue (generating 1.6 per cent of group revenue growth) will need to increase," the investment bank said today.

However, it added that operating margins at the company were likely to remain under pressure and that it did do not yet have sufficient confidence in a continued recovery across developed economies.

Espirito lowered its fair value for the firm to 290 pence from 315 pence.

Meanwhile, Morgan Stanley cut its 2012 EPS estimates for Carnival (LON:CCL) by 30 per cent and changed its rating to equal weight  following the tragic grounding of the cruise ship Costa Concordia over the weekend.

Elsewhere, expected weak fourth quarter results for oil giant Royal Dutch Shell (LON:RDSB) presents another good buying opportunity, according to broker Collins Stewart.

"Shell will report its 4Q11 results on 2 Feb. We expect a combination of circumstances to lead to weak figures, as was the case at 4Q10 and 4Q09.

"As in both those cases, we think share price weakness around the results offers a good buying opportunity into what remains our top big-cap pick in the sector.

"We think the shares could still weaken further into the figures, but see current levels as attractive for longer-term investors," commented analyst Gordon Gray.

In the small caps, broker Numis has raised its target price on Irish oil and gas group Providence Resources (LON:PVR) by 10 per cent due to increased stakes in the Barryroe and Dragon fields offshore Ireland.

The new target price is 446 pence, up from 400p, which reflects a 9 per cent or 73p increase in estimated net asset value to 891p to reflect the higher exposure to the two fields.

As Providence is an explorer, Numis applied a 50 per cent discount to the NAV but even with this says the group continues to look materially undervalued.

“The portfolio offers several very high impact exploration wells that could unlock value many times the current share price,”said the broker.

Shore Capital pointed out that it expected Arian Silver (LON:AGQ) to announce a larger, upgraded resource later in the second half of 2012 after it unveiled "encouraging" drilling results from the San Jose project in Mexico.

In a trading update, stamps experts Stanley Gibbons Group (LON:SGI) expects full-year results to be broadly in line with market expectations and is confident of further growth in the 2012 financial year and beyond.

City firm Peel Hunt said the firm was making good progress. Analyst Charles Hall said the group’s profits are in line with his expectations which means that profits in the second half have risen by around 20 percent.

He noted that the company is continuing to invest in new initiatives, which should bear fruit in 2012.

Oriel Securities commented on Metminco's (LON:MNC, ASX:MNC)latest drilling results from its 100 per cent owned Mollacas copper leach project in Chile, which confirmed the continuity of the copper oxide and enriched supergene zones.

It believes that if the resource update turns out positive for Mollacas, the company is likely to seek funding of at least US$56 million for developing the project.

The broker pointed out that current capex cost assumptions, average operating cash costs and production of 13.500 tonnes copper cathode are based on a 2008 scoping study, which could be a little light given industry-wide cost inflation over the past few years.

“Nonetheless, followers of Metminco will  know that the company has a number of significant copper and copper-gold  porphyry deposits in Chile and Peru, including the world class Los Calatos molybdenum-copper project that are the main prize,” Oriel added.

Elsewhere, broker Numis maintained its price target of 37 pence a share on Alliance Pharma (LON:APH), adding it saw potential for further 'earnings accretive' product acquisitions from the firm.

The company, which sells branded medicines, said pre-tax profits would be in line with market expectations with annual revenues predicted to be around £46 million for the year just ended.

In a pre-close trading update the speciality pharma group said its Deltacortril steroid pill continued to be affected by increased competition.

Total sales for the 12 months to December 31 were £4.7 million, with £1.1 million coming in the second half.

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