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Broker spotlight part 2: Allocate Software; EMED Mining; Diamondcorp; Europa Oil


Numis has been banging on about the increased quality of revenue at Allocate Software (LON:ALL) for some time. 

The broker said today's trading update fron the health rostering specialist showed strong outperformance “on almost every metric that really matters for the future - cash, bookings, recurring orders, deferred revenue and unbilled orders.”

Numis, which rates the shares as a buy, reckons the key drivers for the company are: strong customer uptake of cloud-based products; good sales of medics with increasing multi-year renewals, which can yield cash upfront, and good healthroster sales in the second half.

The latest figures leave its forecasts for the current financial year (to 31 May 2014) “comfortably underpinned,” it said.

SP Angel still rates copper mine developer Emed Mining (LON:EMED, TSE:EMD) a 'buy' after it confirmed details of its recent convertible placing.

The company has brought in £9.6mln (US$15mln) through subscription agreements with two of its cornerstone customers - XGC and Red Kite. The notes can be converted into EMED shares at a price of 9p per share.

"The offering of security should not be a surprise to the market and both XGC and Red Kite now have a significant interest in making sure this deal progresses in an efficient manner once the Spanish authorities finally approve the requisite permits."

DiamondCorp’s (LON:DCP) steady progress with the development of the Lace mine in South Africa is impressing a number of City houses.

Tailings retreatment starts next week and Northland estimates recoveries this year will total about 15,000cts.

Next year, Northland expects 600,000t of tailings to be treated, recovering 30,000cts and with development excavations likely to recover a further 28,000cts, the total for 2014 should be 58,000cts.

“The pre-Run of Mine (ROM) production 2013-2015 is expected to result in the recovery and sale of around 300,000cts, worth around USD$42mln (£27mln), double DiamondCorp’s current market cap, before the mine begins ROM production in late 2015.”

House broker SP Angel added: “The sale in September will give a good indication of pricing for the diamonds. The current valuation reflects very little prospective value for the production from Lace and we remain buyers.” 

Europa Oil & Gas (LON:EOG) will see one of its smaller prospects tested with the Egdon Resources-operated Wressle-1 well in Lincolnshire.

Egdon estimates that Wressle could hold mean gross unrisked prospective resources of 2.1 mln barrels of oil (about 700.000 bbls net to Europa).

The well is considered around a 1 in 3 prospect, said Northland, will target multiple prospective sandstone reservoirs in a ‘structurally favourable position’ near the crest of the structure and be deviated to a target depth of about 2,300 metres.

Northland says there is the potential to generate cashflow up to £25m/around $50/bbl, though even a more modest contribution would help shore up Europa’s cash flow producing UK operation.

The way it keeps hammering the gold price, perhaps it’s time for Goldman Sachs to drop any reference to the precious metal from its name.

Today it chopped its forecast for gold for the current year to US$1,300, from US$1,435, and in 2014 to US$1,150 (US$1,270), which represents a potentially eye-watering level for many gold miners.

The US broker sees no respite from the recent selling by holders of exchange traded funds (ETFs) and doubts whether jewellery buyers or central banks will be able to make up the shortfall.

In a very nervy market for all things gold-related, miners Randgold Resources (LON:RRS) fell 82p to 4,126p, African Barrick (LON:ABG) dropped 5p to 116p and silver and gold group Fresnillo (LON:FRES) fell 18p to 893p.

Liberum Capital thinks analysts might need to dilute their fiscal fourth quarter sales estimates for alcoholic spirits behemoth Diageo (LON:DGE).

The broker has downgraded the Smirnoff and Johnnie Walker brands owner to ‘hold’, as it reckons performance in the three months to the end of June will be even more disappointing than the preceding quarter.

The contribution of recent acquisitions will begin to be factored in to year-on-year comparisons, making top line growth harder to achieve, while the imminent departure of highly-regarded chief executive Paul Walker is also likely to act as a drag on the share price.

Citi, meanwhile,  issued  a sobering assessment of the food retail sector and with it downgrades to Morrison (LON:MRW) andSainsbury (LON:SBRY).

The American bank demoted Sainsbury to ‘sell’ from ‘neutral’, while Morrison goes to ‘neutral’ from ‘buy’. 

Tesco (LON:TSCO) remains unloved and on a ‘sell’ rating and cash and carry group Booker (LON:BOK) is the only UK business makes it onto the ‘buy’ list. 

“Investing in the sector on the basis of easy monetary conditions and low high-yield bond yields no longer seems, in our opinion, to make so much sense,” Citi added.

“GDP growth looks like it will stay sluggish for some time and square footage growth is set to get still-lower: these two factors are liable to mean industry profit growth is slower than in the past. 

“As stated, growth in times past was none-too-swift.”

Meanwhile, worries over Asia at the Pru are overdone says Merrill Lynch, which has repeated its 'buy' stance on life insurer Prudential (LON:PRU) saying the risk to the stock from the Asian market is less than might be expected.

The group's Asian business is more sensitive to changes in numbers of customers signing up for its products than it is to macro issues such as QE tapering.

"We see close to 25% total return potential from the shares over the next 12 months and reiterate our Buy rating," says analyst Blair Stewart, who notes the shares have lost 15% of their value in recent weeks.

UBS put the spotlight on BHP Billiton’s (LON:BLT) iron ore business, after a ‘roundtable’ meeting with management, and emphasised the group’s strategy for disciplined growth.

BHP is very confident in its 183mln tonne production target for 2013, according to analyst Myles Allsop. Meanwhile he highlighted that BHP’s Guinea and Liberia projects are up for sale - and UBS says they’re worth US$200mln.

“BHP is cutting costs, with for example some contracts renegotiated 15% lower year-on-year and headcount falling,” the analyst said in a note.

UBS rates BHP as a ‘buy’ with a £24.70 target.

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