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Broker Round-up part 2, including KEFI Minerals, Paragon Diamonds, Weatherly International, Plant Impact, Alliance Pharma

Published: 16:01 15 Jan 2013 GMT

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Expect strong and positive newsflow over the coming months from KEFI Minerals (LON:KEFI).

That’s the message from City broker Fox-Davies, which was impressed by the company’s drill results from the Jibal Qutman licence in Saudi Arabia in early December.

“Although early stage, KEFI has some very prospective licenses in Saudi Arabia which are now starting to return good results,” said the small cap specialist, which has a ‘speculative buy’ rating on the stock.

“With potential further licenses being granted this year and the possibility of acquiring others, KEFI will be able to consolidate its first mover advantage in the country.”

The same broker applauded Paragon Diamonds’ (LON:PRG) move to hire companies that will help take the Lemphane kimberlite project in Lesotho to inferred resource status.

Paradigm Project Management is to carry out a first pass scoping study to design an operational model for the development of Lemphane.

Rodio Geotechnics has been contracted for an initial 2,000m deep delineation drilling programme to identify the structure at Lemphane down to 350m, while consultant AMEC undertake full geological and 3D modelling of the Lemphane kimberlite.

The broker restated its ‘buy’ advice and 30p price target price.

Broker Canaccord Genuity kept its ‘buy’ rating on Weatherly International (LON:WTI), tipping the copper company for a “substantial improvement in output” next quarter.

During the three months to December 31, Weatherly produced 5,780 tonnes of copper concentrate, containing 1,328 tonnes of copper, which was lower than the previous quarter (6,499 tonnes).

It said production was affected by poor mechanical availability and the shorter working month in December.

However, Canaccord analyst Peter Mallin-Jones says the pace of mining picked up in December and he expects Weatherly to boost production in its next quarterly report. This, he adds, will lift revenues and improve unit costs.

Mined grades and metal recovery remained “strong”, with cash costs pushed up 10% from the first quarter to US$5,829 per tonne.

“The production costs were higher than we hoped but in line with the lower production,” said Mallin-Jones, who has a ‘buy’ tip and 13p target price.

Small cap specialist WH Ireland reckons crop nutrition company Plant Impact (LON:PIM) now has enough capital to execute its growth plans and become a profitable, cash generative business.

It comes after the company raised around £1.5mln following the completion of the recent placing and open offer.

The cash will also help the company pay back the Arysta LifeScience loan facility, added the broker, which rates the stock a ‘speculative buy’ with a 30p target price.

It sees Plant Impact becoming profitable in the 2014 financial year and cash generative the year after.

Alliance Pharma's (LON:APH) expansion of its acquisition fund is a key development for the specialist pharmaceutical company, according to broker Numis.

The group today announced an additional £10mln facility with Lloyds Banking Group, taking the total facility available to the group to make purchases up to £30mln.

Alliance has used £16.5mln of the facility and has £13.5mln to spend following the latest injection of funds.

Numis said that management has executed on 23 deals over the last 14 years and continually reiterates the strength of its M&A pipeline.

If the £13.5mln was fully deployed on acquisitions through 2013 at the historical average 3 times gross profit, the broker sees up to 30% upside to its 2014 profit forecasts.

Chip maker ARM Holdings (LON:ARM) may be the best in the sector, but it is not worth its current market price.

That’s the view of Morgan Stanley, which cut the processor designer to ‘equal weight’ from ‘overweight’, sending shares down more than 4%.

It comes amid reports that tech giant Apple has slimmed down orders for iPhone components given sluggish demand.

“While we remain very impressed by ARM and its partners’ progress, we believe the current absolute share price is not attractive enough for new money, and we downgrade the shares to equal-weight,” said analyst Francois Meunier.

He praised the progress of the stock over the past 12 months, during which time Apple launched its iPad mini, powered by chips which use ARM's intellectual property.

This time last year investors feared big rival Intel, but things have gone swimmingly for ARM since then, with what Meunier calls “near perfect trajectory in ARM’s market share”.

However, things may not be as easy in 2013, he predicts.

“It will be difficult for news flow to improve from here, and ARM could still lose sockets here and there (Samsung Galaxy S4, for instance).”

The tipster is waiting for a better entry point to “what remains a great story”.

Investec joined Morgan Stanley in downgrading ARM to ‘hold’, citing the share price rise – up 50% in the last three months – as its reason.

Bank of America Merrill Lynch analysts were encouraged by upmarket fashion house Burberry’s (LON:BRBY) update today.

The broker lifted the stock to ‘buy’ as it believes the good news from retail outweighs the bad news on wholesale.

Underlying retail sales rose 6% in the latest quarter, while wholesale revenues came in 5% lower.

Shares in the luxury goods group scrubbed up nicely as demand for its iconic coats, menswear and digital sales helped revenues race ahead over the holiday.

It is a far cry from the surprise profit warning in September that saw shares plummet.

Banking stocks made their way back down today after rising on the back of JPMorgan Cazenove’s assessment of the UK banking sector, which made for pleasant reading.

The City heavyweight bumped up Lloyds (LON:LLOY) and RBS (LON:RBS) to ‘neutral’ and ‘overweight’ respectively.

It said funding cost declines create a positive outlook for both banks. Barclays though remains its top pick.

Video search engine Blinkx (LON:BLNX) got a boost when Citi upgraded the stock to ‘buy’ from ‘neutral’, naming satellite broadcaster BSkyB (LON:BSY) and ITV (LON:ITV) among its best investment ideas for the media sector.

UBS agreed with Citi, lifting ITV’s target price to 145p from 110p after increasing its 2013 earnings forecasts by 25%.

The broker was also bullish about publisher Pearson’s (LON:PSON) prospects. It reckons its US schools business could finally deliver some positive surprises in 2013.

Analyst Alastair Reid lifted his growth forecasts for US schools to 3% for 2013, 8% for 2014 and 6% for 2015.

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