Goldman Sachs slashed its recommendation on Gem Diamonds (LON:GEMD) to ‘neutral’ from ‘buy’, but left its bullish stance on the sector unchanged.
The investment bank said the FTSE 250 diamond group was downgraded on valuation grounds after seeing its shares rise by around 40 percent this year.
Since Gem Diamonds was added to Goldman’s Buy list in December last year, its shares have surged 49.1 percent compared with the 5.7 percent gain in the FTSE World Europe index.
Over the last 12 months the shares are up 0.7 percent, versus the benchmark down 15.3 percent.
“Following this year’s strong performance, we see better upside potential on offer elsewhere in our coverage universe,” said Goldman analyst Eugene King.
Despite the downgrade, the analyst reaffirmed his bullish 345 pence target price for Gem and made no material changes to the forecasts.
King said global luxury spending remains robust, adding that the diamond market fundamentals will support a “prolonged period of tightness”.
According to King, Gem is well positioned to take advantage of the strong demand in market given its growth plan for the flagship Letseng diamond mine in Lesotho, which King expects to achieve a production compound annual growth rate (CAGR) of 12.5 percent in 2013-2017.
Shares in Gem Diamonds fell one percent to 267.4 pence this morning, valuing the group at £369.75 million.