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Broker Roundup Pt 2 including Hummingbird Resources, Lonrho, Xcite Energy and The Real Good Food Company

Published: 15:54 01 Feb 2012 GMT

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Online grocer Ocado Group (LON:OCDO) is rated a 'buy' today by Goldman Sachs, which said that expansion plans for the distribution centre and customer services issues were key to the firm's prospects.

Full year EBITDA stood at £27.9 million, which implied margin of 4.7 per cent, was in line with the investment bank's expectations, said analyst Karen Hooi, who added that management now expected first quarter sales growth to be around 10 per cent and for sales growth to improve as the year progresses due to capacity expansion from its distribution centre called CFC1.

Hooi said she continued to believe that the successful expansion of capacity and continuing improvements to customers was key for Ocado to meet Goldman's revenue and profitability estimates.

"The company expects to be able to reach capacity in excess 160,000 orders per week owing to CFC1 expansion by the end of FY2012. The development of CFC2 remains on track in terms of timing and budget. We continue to expect the completion of CFC2 in late 1Q13," she said.

Goldman targets a price of 105 pence each for Ocado shares.

The City heavyweight also has a 'buy' stance on chip designer ARM Holdings (LON:ARM), targeting a price of 800 pence for the shares, and said it delivered a very strong Q4 statement and a confident outlook statement.

Goldman also reiterated its 'Conviction buy' for British Sky Broadcasting (LON:BSY) and said its second quarter figures were "strong".

For the six months to end 2011, the group posted revenue up 6 per cent to £3.4 billion. while operating profits were up by 16 per cent to £601 million, a new record.

Turning to the mining sector, German bank Deutsche said of BHP Billiton (LON:BLT) that one of the company's 'key' challenges this year was to convince shareholders that investing in capital-intensive projects over an extended period would deliver “acceptable” returns.

This is highlighted in regard to its four "mega projects" which Deutsche assesses as US onshore oil and gas, the Olympic Dam expansion, Jansen Potash and the Outer Harbour iron ore project.

"The Mega projects are those with large upfront “flag fall” capex and long project build times (perhaps up to four stages). Despite investor concerns that these projects will depress returns over the near term, we think that on balance the positive attributes outweigh these concerns," said  analyst Grant Sporre, who rates the stock a 'buy' with a target price of 2,550 pence.

Meanwhile, Myles Allsop at UBS, said Xstrata's (LON:XTA) fourth quarter production improved quarter-on-quarter and was slightly above the Swiss bank's estimates.

Allsop rates the stock a 'buy' saying the firm has an attractive commodity mix and growth pipeline. UBS gives the shares a target price of £1450 pence - based on 1 times NPV (net present value) using a 10 per cent discount rate.

"We expect the share to re-rate if management delivers organic growth as planned and commodity fundamentals remain strong," said the analyst.

In other coverage, Imperial Tobacco (LON:IMT) is rated a 'buy' by Oriel Securities, which targets a price of 2750 pence (current price: 2312 pence) for the stock.

Elsewhere, broker Daniel Stewart welcomed Hummingbird Resources' (LON:HUM) statement, in which it unveiled a maiden resource for its Tuzon prospect in Liberia of 2.05 million ounces of gold bringing the global resource estimate for the Dugbe 1 project area to 3.8 million ounces.

The company also told investors there was scope for further resource growth within a minable radius of the original Dugbe F deposit.

"Hummingbird’s phenomenal exploration drilling programme in Liberia’s Birimian, has distinguished the company with one of the fastest growing gold resources in West Africa," said the analyst.

Daniel Steward said that based on an enterprise value per resource ounce of US$60 per ounce gold, that would give an implied market cap of US$222 million or £141million -  translating into a share price of £2.65.

"This implied valuation excludes Hummingbird exploration prospects at Crocodile Hill, Sackor 1 & 2 and Gold Hill, all within a 4km radius of the Dugbe F project," he highlighted.

Meanwhile, veteran analyst John Meyer, of Fairfax, believes the Dugbe project is primed and ready to move into the next phase of development.

The same analyst called Kazakhstan focused Hambledon Mining's (LON:HAMB) plan to raise US$9.06 million through a share placing a success.

The money will be used to complete the acquisition of Akmola Gold LLP, which owns two gold deposits near the group’s Sekisovskoye mine. It will also be used to pay fines relating to the leak at one of the Sekisovskoye mine’s tailings dams as well as repairs to the dam

Meyer said it enabled the company to finance the next stage of development and address the tailings dam issue.

The analyst expects Hambledon to achieve gold production of 34,000 ounces next year, up from the 2010 output of 21,000 ounces.

Gold production will then increase to 63,000 ounces next year and reach 100,000 ounces in 2015 as the mill operating rate ramps up from 800,000 tonnes per annum in 2012 to 920,000 tonnes in 2015.

At the same time, production costs will fall from last year’s US$750 per ounce to US$520 over the next three years, added Meyer.

Fairfax currently has a target price of 12 pence for Hambledon, representing a 200 per cent upside to yesterday's closing price of four pence.

Elsewhere, WH Ireland issued a note on LonZim (LON:LZM), which it rates a ‘speculative buy’, following yesterday’s announcement it plans to change its name to Cambria Africa.

The company said its new name is inspired by the Cambrian period in the earth's development and represented an “anticipated period of rapid development and a promising new era” for the company and Zimbabwe.

WH Ireland analyst Derren Nathan said the investment company is well positioned to benefit from future improvement of the Zimbabwean economy over the longer term.

Elsewhere, Lonrho (LON:LONR) announced a 10 year agreement today with the government to bring a 450-room grand hotel in the Democratic Republic of Congo (DRC) back to its former glory.

Panmure analyst Damian McNeela said the broker continued to see significant 'upside potential'  in Lonrho shares given the growth platform the firm had established in Sub Saharan Africa.

He said today's news represented "a welcome addition to the company’s portfolio of hotels and should be the first announcement in a busy year for the hotels business, given the roll out of the easyHotels franchise".

The broker reiterated its 'buy' recommendation and  21 pence price target.

Elsewhere, New World Oil & Gas (LON:NEW) has amended its farm-in deal over the Blue Creek project in Belize to increase its stake in the project.

This will give New World a larger stake in the project at an earlier stage in its development. In return it will cover the cost of additional seismic work. In return it will cover the cost of additional seismic work.

The amended farm-in terms reflect New World’s higher expenditure at Blue Creek during the pre-drill stage, according to Shore Capital analyst Craig Howie.

“This is good news, in our opinion, as the deal effectively accelerate New World's participation in this high impact project."

Sticking with oil, the UK Department of Energy and Climate Change (DECC) confirmed its support for Xcite Energy’s (LON:XEL, CVE:XEL) field development plan for the Bentley oilfield, the company said today.

The department has issued a ‘letter of comfort’ to Xcite which confirms its support for the field development plan. The DECC is broadly satisfied with the phased development approach from a resource recovery perspective, Xcite said.

Oriel Securities analyst Nick Copeman, in a note, told clients that the ‘letter of comfort’ effectively shows that Phase 1B should be able to progress subject to the results of phase 1A, funding and the re-submission of the FDP later in 2012.

According to Copeman, Xcite shares have ‘good upside potential’, based on the full development of the Bentley field.

Oriel currently has a ‘buy’ recommendation on the stock, and the broker says the shares are worth 200p each.

ECR Minerals (LON:ECR, OTC:MTGDY) told investors today that its associate THEMAC Resources Group (CVE:MAC) had increased the copper resource for the Copper Flat project above 1 million pounds.

Broker Old Park Lane welcomed the “extremely encouraging” resource upgrade, claling it a key milestone for the project’s development. Analyst Phil Swinfen has made no change to his current Copper Flat net asset value (NAV) estimate of US$79 million, valuing ECR’s 19 percent stake at US$15 million.

Referring to The Real Good Food Company (LON:RGD), analyst Phil Carroll of house broker Shore Capital, said: "We believe the company has now come out of the end of the tunnel following the structural changes to the EU sugar market, and as a result of its strategic changes it now looks to us to be well placed to continue making progress going forward.

This morning, the food producer said it was confident that it would meet its expectations for 2012, as it released positive numbers for its second half.

The group, whose operations span sugar distribution, cakes and bakery supplies, said sales growth and value added activities lifted EBITDA to £6.4 million in the six months to Dec 31.

Broker Northland said Global Energy Development's (LON:GED)  refinancing announced today increased "headroom" on lending to move the Bocachico and Bolivar contracts forward.

The Latin-America focused company said it had secured a US$12 million financing with HKN. The funds will be used to redeem existing convertible notes of $9.5 million before they mature in December this year and to pay for developing its existing assets - mainly the Bocachico and Bolivar contract areas in Colombia.

City broker Daniel Stewart has today started coverage on Petroceltic International (LON:PCI) with a 13.7 pence price target.

The broker said the firm had a well diversified asset base that has ‘game changing’ potential, reflected by a punchy price target which implies nearly 70 per cent upside from the current price of 8.2p a share.

In Algeria, Petroceltic is working, alongside major European utility firm ENEL and Algeria’s national oil firm Sonatrach, to develop the world class Ain Tsila gas field. And the firm will in the coming months start preparing to start its first drilling programme in the Kurdistan region of northern Iraq. In Italy it is also exploring the onshore Rovasenda exploration project.

Northland released a note on mobile messaging group Synchronica (LON:SYNC) following the offer for the firm from Myriad AG. The Swiss firm’s all-paper bid is worth 13p per share, valuing Synchronica at about £20.6 million.

A merger would have good strategic rationale, house broker Northland suggested today, but the board of the mobile messaging firm advised shareholders to take no action.

Northland said a merger would provide a broader product platform, complementary operations and a number of customers in common.

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