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Broker Roundup - Redhall, Mount Engineering, Gulfsands Petroleum, Solomon Gold


Fairfax analyst Mike Foster examined niche engineering group Redhall (LON:RHL), after the company announced a recommended £16.42m cash offer for oil-industry equipment specialist Mount Engineering (LON:MOU).

According to Foster the deal is a ‘positive move’ for the company as it will expand Redhall’s existing exposure in oil and gas, and dilute exposure to public sector funded business streams.

“The market had been waiting for the next step in the acquisition led growth plan, and while this move has decisively turned the negative share price momentum, the initial jump deserves to be followed by steady appreciation,” Foster commented.

Foster believes the shares are ‘significantly oversold’, and the price trend should now reverse.

The analyst expects the market to re-rate the share, emphasising that the deal will enhance Redhall’s EPS by over 20%.

Sticking with the oil & gas sector, Arbuthnot Securities issued an upbeat assessment on Gulfsands Petroleum (LON:GPX) with analyst Dougie Youngson upgrading his valuation for the company. According to Youngson, Gulfsands is one of the top picks on London’s AIM market.

“[Gulfsands] successfully combines an excellent management team with a strong portfolio of growth assets."

“The company has many opportunities to grow both reserves and production in the short term, providing several short term price drivers.”

Gulfsands’ key projects were boosted recently with hydrocarbons being found in Tunisia, and its Syrian exploration was recently expanded to include three more wells. “The expansion of the exploration programme in Syria is a welcome contribution as is the unexpected resource update from Tunisia.”

“This should give investors some comfort ahead of drilling the next well once it comes on-stream.”

Elsewere, with the gold price breaking through the landmark $1,300 level, its not surprising that London’s gold equities were in focus for analysts today.

“We are seeing substantial new private client and institutional interest in gold shares as the gold price nears $1,300/oz”, said Fairfax Securities mining expert John Meyer

In response to the frantic trading in Solomon Gold (LON:SOLG), which saw the stock sky-rocket almost 300% after yesterday’s bumper exploration results, John Meyer looked ahead for further upside potential.

“Further sampling of the licenses on the Fauro Island look likely to carry more similar mineralised grade and could encourage investors further”, Meyer said.

The shares burst into life on Thursday, with a four-fold increase to hit a staggering 81p intraday-high, before closing just above 50p each.

“There is potential for the prospects to show economic tonnages and grades when drilled and management may now press ahead with a more substantial exploration campaign to determine the true value of the licenses in Fauro Island.”

That said the veteran mining analyst cautioned: “The shares have reacted dramatically to the news and may prove volatile as investors and traders position for news of further results.”

Collins Stewart mining analyst John Mcgloin emphasised that gold producers are ‘benefiting from good operating leverage to the rising gold price’.

“The large gold miners are now really generating cash, and are also stressing a desire to pass on the rising returns to shareholders ... the read across to London investors for is to look for a gold stock that fits a similar bill - a larger producer, lacking growth with capacity to lift dividends”.

According to Mcgloin African Barrick (LON:ABG) stands out in the sector.

“The stock has underperformed the gold price this quarter ... We reiterate our ‘Buy’ recommendation with a 790p target price, and continue to rate the company our top pick in the sector.”

Mcgloin also examined Minera IRL’s (LON:MIRL) decision to not exercise its options to acquire the La Falda Project in Chile and the Killincho Project in Peru.

“This is an example of a prudent approach to exploration, by turning over properties quickly in order to concentrate its time and funds on the most prospective targets and dropping projects that do not meet required hurdles,” said Mcgloin.

Westhouse Securities has raised its price target on GGG Resources (LON:GGG)  for the second time this year to an ultra-bullish 26.5p a share after it re-assessed the potential of the Bullabulling gold project in Australia.

“The share price is up over 150 per cent year-on-year, but reflects how the management has managed to turn the company around since moving out of China,” said analyst Mark Heyhoe in a research note to clients.

“Despite the rise, we believe there is still a lot of upside to the project, with the potential resource update and the results of the feasibility study to come over the next few months.

The valuation moves from 18p a share previously and 5.8p a share at the start of the year. At 12.50pm, the stock was trading at 8.25p, up 0.25p or 3 per cent.

FinnCap is bullish on the expansion potential of Mariana Resources’ (LON:MARL) Las Calandrias gold-silver project in Patagonia. Eleven holes are now complete at the Calandria Norte prospect, where previous drilling encountered bonanza near surface gold and silver grades.

“At this early stage of the drill programme, we think there is greater risk being out of the stock than in it,” FinnCap analyst Joe Lunn said.

The broker expects the initial batch of assays that will be released in October to be similar to those already reported.

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Archer Daniels Midland Timeline

July 31 2012

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