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Broker Roundup Pt 2 including North River Resources, Connemara Mining, Probability, Bovis, Taylor Wimpey and Petra Diamonds
The UK house building sector has started the new year well, with around an average 7 per cent rise in share prices, said Wall Street bank Citi.
Analyst Clyde Lewis said in a note on the sector that this was helped by strong trading updates from a number of house builders at the start of the month.
However the analyst said that outlook for the UK remained "muted" at best with european macro uncertainty. The risk for the housing market within Citi's forecasts came mainly from the rising unemployment count which is expected to hit 9.4 per cent this year, he said.
"We continue to believe that the sector will see further decent margin progress in 2012 even against a backdrop of static volumes and prices," he said.
He said he has upped his recommendation on Bovis (LON:BVS) to 'buy' on the back of the modest increase in the target price, while conversely pulled his rating on Taylor Wimpey (LON:TW.) back to 'neutral'.
"We continue to be buyers of Bellway (LON:BWY) and Persimmon (LON:PSN) with a Neutral rating on Barratt (LON:BDEV), Berkeley (LON:BKY) and Redrow (LON:RDW).
Citigroup has also maintained its "sell" rating on Antofagasta (LON:ANTO) and targets a price of £10.10 for the shares - down from £10.60.
Citi said that the firm reported solid fourth quarter production figures but guidance for the production and costs for 2012 were 4.7 per cent lower and 4 per cent higher respectively against Citi's estimates.
"The lower than expected production guidance boils down to lower grades at Los Pelambres and production at pits with high strip ratios at Michilla. In addition, the power contract at Los Pelambres is due for renewal at end 2012 and we think it is likely that costs for this mine go up again in 2013. Provisional pricing negatively impacted earnings by $285mn in 2011 due to copper and $25mn due to molybdenum," said analyst Anindya Mohinta.
Following this, said the analyst, Citi had raised 2011 EPS by 3.8 per cent to reflect the strong production numbers but cut 2012 and 2013 EPS estimates by 7 per cent and 10 per cent respectively - consequently lowering the firm's target price.
City Heavyweight Goldman Sachs today rated Petra Diamonds (LON:PDL) a 'buy' after it gave its trading update for the first half.
"This contained disappointing sales data but gave positive news on the production outlook," said the investment bank, which targets a price of 190 pence for the stock.
Despite stockpiling its diamond production because of weak pricing, and an earlier sales cycle cut-off as a result of the December holidays, the trading update confirmed that the company is on track to meet its production target of 4 million carats in 2014.
Analyst Eugene King added that Goldman was lowering its EPS forecast to US$0.14 from US$0.15 to reflect lower than expected full year 2012 pricing.
Turning to tobacco, Imperial Tobacco (LON:IMT) was upgraded today by broker Nomura to 'neutral' from 'reduce'. Nomura downgraded the cigarette firm in November last year because of concerns over margin pressures developing.
"We also took a view that, whilst we still see the prospect for more major M&A in the space materialising, this would not be a “risk” until
late 2012/2013," said analyst David Hayes.
However, said the analyst, after the resolution of government stake sale at JT (Japan Tobacco) in April/May, and the medium term strategy outlook presentation from JT as well in April – Nomura sees the investment case inevitably being more influenced by prospects for consolidation activity and less influenced by prospects for earnings cuts on risks of underperforming versus consensus.
In the smaller caps, North River Resources (LON:NRRP) reported a boost to its copper resource inventory as it announced a maiden JORC resource for a deposit at its Witvlei project and a resource upgrade for a deposit on the Dordabis project, both in Namibia.
Christopher Welch of Ocean Equities, said in a note that the results from just two of North River’s copper targets were positive for the company.
He said that the Malachite Pan is clearly the more prospective of the its copper projects, although further work is warranted at Koperberg to examine its deeper mineral potential.
"The upcoming metallurgical test results are expected to support relatively easy recovery and high recovery rates for the ore types at Malachite Pan and Koperberg, results which will augment today’s resource announcements. The results will also lead onto further tests of the potential mine project, with scoping study test results expected in the near term,” Welch added.
Gaming software specialist Probability (LON:PBTY) would be a logical partner for Facebook as the social media giant seeks to boost its mobile revenues, broker Numis suggested today.
Facebook filed its listing documents yesterday ahead of an IPO that could value the company at US$100 billion. Numis sees one way for the social media group to monetise this customer base is to permit gaming.
The broker said Facebook met up with gaming companies in Europe before Christmas and though it did not name which companies it saw, Numis believes Probability would be a logical choice if it decided to go ahead with mobile gaming.
Elsewhere, Connemara Mining’s (LON:CON) joint venture at Mine River in Ireland adds a new dimension to a story seen previously as a zinc/lead play, according to broker Optiva Securities.
Connemara has secured Canadian group Hendrick Resources as a partner to explore the Mine River project.
“The discovery of over 1 million ounces of gold by Conroy Gold and Natural Resources further to the north shows what can be achieved,” commented Optiva, which maintained its 50 pence price target for the stock.
This could soon be revised upwards once more data comes out of Mine River in the coming months, it said.
Central Asia Metals (LON:CAML) today announced the completion of its copper plant at Kounrad in Kazakhstan and expects to put it into action at the end of this month.
The solvent-extraction electrowinning facility (SX-EW) will process around 10,000 tonnes of copper cathode a year and the company said it expected first copper production in April this year. Importantly, the firm thinks it will deliver this first production and complete the construction phase of the project for less than the budgeted amount of $46.9 million stated in the Kounrad feasibility study in March 2010.
Charles Cooper, of Oriel Securities, described the update as "highly positive". He rates the stock a 'buy' with a target price of 196 pence.
"Project construction is now largely complete and under budget which should provide significant working capital flexibility during the commissioning and ramp-up phase. We estimate that the
company currently has at least US$9 million in cash," he said in a note.
