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Broker Round-up Part 2: Condor Gold, Alliance Pharma, Kea Petroleum, FastJet and Ferrex
Swiss broker UBS expects the long-running saga of Xstrata’s (LON:XTA) merger with Glencore (LON:GLEN) to end with the miner’s independent directors approving the improved terms.
Xstrata's independent board members will publish their recommendation on the merger no later than 7 am next Monday, 24 September.
The Swiss broker expects the miner’s board to recommend the revised proposals, as shareholders generally appear supportive of the higher exchange ratio and governance is largely unchanged except for Glencore boss Ivan Glasenberg to replace Mick Davis after six months.
“As a result we see a 60% plus probability that the merger will happen,” said the broker, which adds the combined company will be reasonably well positioned due to its commodity mix.
Liberum Capital remains positive on oil firm BG (LON:BG.), despite “unimpressive returns”.
“There are clear risks attached to BG,” said Liberum analyst Andrew Whittock.
“The balance sheet is stretched and may require more disposals and/or delayed investment in new opportunities; returns on new investment are under pressure; and all this at a time when the CFO has taken leave of absence and the CEO succession process is underway.”
Although, the analyst cuts his target price to 1,557 pence from 1,702 pence on lower cash flow forecasts, he has a ‘buy’ rating as more visible near-term exploration and production volume growth offers “a helpful catalyst” as long as the Brazilian and Australian developments proceed as planned.
Analyst James Thompson raises the net asset value (NAV) for the block from 45 pence after the oil firm added 1 TCF of recoverable resources yesterday from Fortuna West, which is 80% owned by Ophir.
JP Morgan is also upbeat on Standard Chartered (LON:STAN) after an investor day with the troubled bank.
The broker came away reassured about the investment case and retains its ‘overweight’ stance on the bank, which saw over £8 billion wiped off its market value last month after allegations of illegal dealings with Iran.
“We believe that management remains focused on long-term objectives with positive drivers of growth intact over the medium term,” said JP Morgan analyst Raul Sinha.
After a visit to the country, analyst Ian Shackleton reckons the company, behind the world-renowned Smirnoff, Johnnie Walker and Guinness brands, is now gaining leadership of whiskey in Russia.
“We continue to see spirits as a good place to invest in the consumer world,” he added.
Broker Ocean also cheered the news, calling it a “major achievement” for Condor.
“The company deserves credit for meeting targets in a timely fashion, a rare trait in a junior mining company,” said analyst Chris Welch.
Even after the recent strength in the share price – which has quadrupled since the start of the summer – Welch reckons the gold miner is undervalued.
“Given the efficient business model, we believe there remains significant opportunity to leverage the infrastructure through the acquisition of new products, resulting in improving operating margins,” said the analyst.
She adds that a high yield of 3% compared with the rest of the sector is a real incentive for investors to be patient and stick with the longer-term investment story.
Simmonds has a ‘buy’ target and 30 pence target price.
After a meeting with the company’s relatively new managing director Richard Parkes, the broker says Kea is now focusing its efforts on its core assets as it closes in on finalising a series of farm-out deals.
“In our view the company is adopting a more rigorous approach to prospect selection (including external peer review) and has relinquished peripheral acreage in North Island and Australia providing more focus on its core Taranaki Basin position, onshore New Zealand,” said analyst Nathan Piper, who has a ‘sector perform’ rating on the stock.
He says the farm-out process will make the most of Kea’s relatively modest US$15 million cash position.
HB Markets has a ‘speculative buy’ recommendation out on new no-frills African airline FastJet (LON:FJET), which is set for take-off in November.
This comes after the new venture, backed by Lonrho (LON:LONR), unveiled Tanzania capital Dar es Salaam as its first operating base.
“We are optimistic that the company would be able to leverage the first mover advantage in the low cost aviation segment and harness the growth from the rapidly growing aviation sector in Africa. However, the company is yet to prove the success of its business model,” said the broker.
Ferrex said it could become a low cost open pit operation after a resource upgrade increased contained metal by over a fifth.
Shore Capital analyst Yuen Low reckons the slight delay in the completion of the definitive feasibility study (DFS) is “par for the course and potentially even a good thing given the current state of markets”.
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