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Broker Spotlight Pt2: Gemfields, 888, AdEPT and Regency find support

Last updated: 15:43 06 Aug 2013 BST, First published: 14:43 06 Aug 2013 BST

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The City brokers have been active Tuesday, and after a blitz on the mega-caps early on, they moved on to take a closer look at the market’s growth stocks.

It was a case of Investec at the double as it ran the slide rule across Gemfields (LON:GEM) and 888 (LON:888).

It initiated coverage of the coloured stones group with a ‘buy’ recommendation and 30 pence-a-share price target, describing it as a ‘rare gem’, and restated its buy on online gaming group 888.

It said of Gemfields: “It has established itself as the largest single producer of emeralds in the world.

“The company has successfully increased the value of its production through marketing and formalising the sales process of its emeralds, enabling margins to expand as jewellery buyers are able to gain confidence in supplies.”

Investec also reckoned the outlook for online gaming group 888 is pretty good after announcing an agreement with Caesar’s Interactive Entertainment.

The broker retained its 185p price target, and says the rating is “supported by strong and consistent revenue growth, as well as exceptionally attractive US profit opportunities that have been materially improved following today’s announcement with Caesars”.

Elsewhere, Regency Mines (LON:RGM) is likely to target the potash potential at its joint venture in Sudan, despite the recently volatility in the fertiliser’s price, suggests Northland Capital.

Regency currently has an option to earn up to 51% of International Mineral Resources (IMRAS), which owns 320,000 square kilometres of licences covering agrominerals and mineral licences in Sudan.

Six gypsum targets have been identified at surface but evidence of potassium-rich evaporites has been discovered in historic boreholes proximal to the licence area.

Northland also repeated its ‘buy’ AdEPT Telecom (LON:ADT), which on Tuesday confirmed it will pull the trigger on a £2mln deal to acquire 3,000 business customers from Bluebell Telecom.

The contracts being bought are all UK fixed line and generate annual sales and EBITDA of £1.8mln and £600,000, respectively.

“The AdEPT management team has a proven ability to make and integrate acquisitions (18 to date) and convert profits into cash,” said Northland analyst David Johnson.

“The UK business telecoms market remains highly fragmented and there is scope for further consolidation.”

Earlier analysts weighed in with no fewer than six downgrades to recommendations, with the promise of more to follow.

It’s not certain what’s shook the Square Mile’s bean-counters from their mid-summer torpor, but HSBC (LON:HSBA), Unilever (LON:ULVR), GlaxoSmithKline (LON:GSK), Moneysupermarket (LON:MONY), Segro (LON:SGRO) and Wolfson (LON:WLF) were all given the chop.

Going a little way to balancing things out, International Consolidate Airlines Group (owner of British Airways) and crash test dummy firm Intertek (LON:IRTK) were upgraded.

Post results, HSBC was cut to ‘hold’ from ‘buy’ at Deutsche Bank, which also pegged back its price target 20 pence a share to 730 pence. “Though we think HSBC offers good medium term gearing to a steeper curve and stronger US dollar, we can't see a near term catalyst for a re-rating,” Deutsche told clients.

Morgan Stanley took aim at food and detergents group Unilever, pegging its call back to ‘neutral’ amid worries about top line growth and profit margins.

Citi also got the ‘neutral’ vibe – but for Glaxo, which has been pegged back after a period of outperformance. However, analyst Andrew Baum still found a couple of reasons to be cheerful about Europe’s largest drug company.

“Accelerating restructuring could unlock significant value but we ascribe a low probability near term,” he told clients.

“We see consensus as still under-estimating the impact of GSK’s utilisation of the UK patent box and the impact on its effective tax rate.”

Elsewhere, UBS had twin targets in comparison site owner Moneysupermarket – which wasn’t so super after being taken back to ‘neutral’ – while the property group Segro trod the same road to ‘neutraldom’.

Wolfson, meanwhile, suffered at the hands of small-cap specialist finnCap, which cut the chip designer to ‘sell’ .

“This was expected to be the year Wolfson finally returned to profit, but it has been disappointing,” said analyst Lorne Daniel. “The first quarter suffered from an unexpected gross margin drop, and that will take most of the year to remedy.

“Now the second quarter has been affected by a slowdown in end-user sales – mainly Samsung’s high-end phones, where Wolfson is very exposed.”

Also, on the ‘sell’ list this morning were shares of Greggs (Canaccord isn’t a fan, particularly after this morning’s lacklustre interims), and Tullow, where the valuation is up with events, according to Investec.

On the plus side, IAG (LON:IAG) was primed for take-off after Citi raised its call to ‘buy’ from ‘neutral’, citing the outperformance of British Airways and cost cutting at Iberia for its more positive tone.

Referring to the Spanish carrier it added: “It is also negotiating a long term 'new transformation plan', which could lead to new aircraft orders growth beyond 2015 as long as it meets its unit cost targets and secures union agreement.”

Finally, Intertek was marked up to ‘market perform’ from ‘underperform’ by RBC Capital, after a long period in the doldrums.

“We like the testing structural growth story, comps are now more benign and we see a pick-up in M&A as likely,” said analyst Andrew Brooke. “Whilst valuation is still full, we now see limited downside risk.”

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