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Broker Round-up Part 2 including Gemfields, Petroceltic and Goldplat

Last updated: 15:26 27 Jun 2012 BST, First published: 19:26 27 Jun 2012 BST

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News Corps’ plans to split the business in two could be a good move for its satellite broadcasting company BSkyB (LON:BSY), according to Deutsche Bank.

Rupert Murdoch-controlled News Corp confirmed yesterday it is mulling separating its publishing interests, which include its scandal-hit UK newspaper arm, from its entertainment assets covering pay-TV (BSkyB, Sky Deutschland, Sky Italia), film studios (20th Century Fox) and broadcast TV (Fox News, Fox Network).

Deutsche believes the primary rationale is to remove the conglomerate discount rather than a direct response to UK political pressures, but the implications are still positive for Sky, which may gain a premium rating once separate from the lower growth publishing.

The German broker, which is a ‘buyer’ with a bullish 860 pence target price, also suggests that once removed from the scandal-hit publishing arm, there is a greater chance of the new 'entertainment co' again bidding for the rest of BSkyB.

The broker adds, though, that a split runs the risk of being seen as a largely cosmetic change in terms of the fit and proper regulatory test and broader plurality concerns, especially as the reports said the Murdoch family would still retain effective control of all the businesses.

Investors welcomed the move with shares rising to 677 pence since the confirmation of the split talks.

Investors weren’t so keen however on Glencore (LON:GLEN) following the news that Xstrata’s (LON:XTA) second largest shareholder was looking for improved terms over a possible merger.

Qatar Holdings, the sovereign wealth fund that owns 11 per cent of the mining giant, revealed it wants 3.25 new Glenore shares for each existing Xstrata share, while only 2.8 are currently being offered.

Myles Allsop, an analyst at UBS, thinks that a potential takeover could be on the cards if the merger falls flat.

“We see GLEN [Glencore] as the most dynamic company in EU mining over next 3 years; even if the current merger fails, we still see potential for a combination medium-term,” he said.

“While a 16 per cent uplift to the x-ratio [merger terms] is possible (especially given GLEN owns 34.5 per cent of Xstrata), in our opinion there is now a material risk that the merger could fail with both management teams adamant that the current terms are fair and had only been agreed after extensive negotiations.”

Elsewhere today, Jefferies sees more risk than reward in troubled insurer Aviva (LON:AV.), downgrading it to ‘hold’ from ‘buy’ and knocking over 100 pence off its target price to 281 pence.

The broker had said that disposals could be the catalyst to put the stock back on track but now thinks the current environment makes this a tough proposition.

“We also think that new management remains committed to the composite model, arguing against a possible sale of more marketable assets,” said the broker, which says that the investor day on 5 July is sure to reveal all.

Barclays reckons BT’s (LON:BT.A) move into sports is “necessary” but presents an “execution risk” and will “likely destroy value”.

However, the broker sees attractive value in the company, rating it as ‘overweight’ with a slightly reduced target price of 260 pence.

Meanwhile, in a research note issued today, Edison pointed out that Gemfields’ (LON:GEM) four auctions in the financial year to June this year had realised US$77.9 million.

It added that the company's extensive emerald resources and targets in Zambia plus other coloured gem projects, including a major ruby deposit in Mozambique, also offered considerable longer-term growth prospects.

An easing of Italy’s oil offshore drilling ban has given a handy boost to some AIM- quoted explorers.

Dublin based broker Davy looked at oil firm Petroceltic (LON:PCI), saying it expects it to re-initiate the Elsa project if the amendments are ratified. The farm-out arrangements remain intact, it added.

City broker Daniel Stewart also highlighted the potential of the Elsa project.

“In our view, by furthering exploration and appraisal of its Italian offshore assets, PCI could generate significant additional shareholder value,” analyst Kate Fisher said in a note to clients.

“Drilling of the Elsa-2 well would also, in our view, present a clear catalyst for share price."

Fairfax analysts were impressed with Goldplat’s (LON:GDP) resource upgrade at Kilimapesa in Kenya, saying production there is now “meaningful”.

Goldplat has now exceeded its 2012 resource target at the Kilimapesa gold mine, adding just over 400,000 ounces of gold, which represents a 162 per cent increase. Kilimapesa now stands at 649,804 ounces.

Fairfax reckons the upgrade gives the company scope to extend the mine life or invest in a larger plant and increase output from the “current modest level of production”.

It has a ‘buy’ rating on the stock, pushing up its target price to 30 pence against the current price of 13 pence, up more than 5 per cent in trading today.

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