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Broker Round-up Part 2, including Probability, Green Dragon Gas, Biome Technologies, Gulf Keystone Petroleum

Last updated: 10:49 20 Sep 2012 EDT, First published: 14:49 20 Sep 2012 EDT

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With commodity price expectations more or less back to normal, Liberum Capital thought it was about time to take another look at the UK’s ‘Big-4’ miners in the wake of a Glencore-Xstrata merger.

The broker rates the enlarged company’s prospects as it would deliver best earnings growth in favoured commodities, while it also marks out “cash cow” BHP Billiton (LON:BLT) as another top pick.

However, Liberum analyst Richard Knights was less bullish about the other two big UK miners.

He is concerned about the investment case for Rio Tinto (LON:RIO) given the weak state of iron ore at present.

“Whilst we don’t rule out a fourth quarter bounce in iron ore, market concerns over medium-term iron ore have been amplified by the recent sell-off, which should stave-off a potential re-rating,” said Knights, who downgraded the stock from ‘buy’ to ‘hold’.

The analyst added that swapping copper for diamonds and coal leave Anglo American(LON:AAL) with a cash flow void.

Anglo American trades at a premium to the sector in 2013 and, with exacerbated platinum concerns and wavering confidence in long term growth (Minas Rio), we downgrade to SELL.”

Deutsche Bank was a fan of ASOS’ (LON:ASC) results yesterday, raising its target price for the online fashion firm to 2,400 pence from 2,120 pence.

The German broker sees growth in the UK speeding up again with more catalysts for the share price ahead as it reiterated its ‘buy’ recommendation.

US broker Jefferies likes the look of BG Group (LON:BG.), which it rates a ‘buy’.

It believes that instead of reducing its exposure to Brazil, BG should team up with Anadarko Petroleum to create a “formidable exploration, LNG trading and global oil & gas production house”.

Peel Hunt today waded in on the news that William Hill (LON:WMH) is lining up a joint bid with GVC Holdings (LON:GVC) for online bookie Sportingbet (LON:SBT).

It said the news from Britain’s biggest bookmaker comes as no surprise, but the timing does.

“Australia is the jewel in the crown and Spain would prove an attractive accompaniment,” said analyst Nick Batram.

“Joining up with GVC also makes sense. The valuation is not straightforward but we believe 60p-70p is a reasonable range.”

He rates both Sportingbet and William Hill as ‘hold’s, downgrading the former from ‘buy’ on the news.

The news of a potential bid is positive for Probability (LON:PBTY), says Numis.

William Hill Online was in discussions with Probability last year about buying the mobile gambling company, but a deal fell through after William Hill Online’s joint venture partner Playtech (LON:PTEC) blocked the move.

However, broker Numis believes William Hill has managed to manoeuvre its way around the situation this time round by saying that a bid would be made by the parent company rather than the online division.

Analyst Ivor Jones does not understand why such an approach was not taken last time, but he believes it opens the door for another potential move for Probability once the Sportingbet deal is done and dusted.

“We believe it has a bright future as an independent company but it may get snapped up by a larger competitor,” said the analyst.

Coal bed methane (CBM) specialist Green Dragon Gas’ (LON:GDG) mid-and downstream operations have “significant growth potential”, according to Peel Hunt.

“Rapidly increasing production” from its upstream business – which comprises interests in six production sharing contracts (PSCs) in China – supplies the gas to drive its other businesses, the broker added.

“To give a sense of scale, only one of the six PSCs (GSS) is currently at an advanced stage of development; it already has 3P reserves of 1.3Tcf, which we expect to drive both reserves and production growth in the coming years,” said analyst Werner Riding.

He kicked off coverage of the stock with a ‘buy’ rating and US$9.3 target price, more than double the current price of US$4.32, up 2.86% today.

Biome Technologies' (LON:BIOM) planned sale of its Biotec joint venture will provide the company with £5.2 million of non-dilutive financing to help it progress its UK- based bioplastics business, says broker Daniel Stewart.

The disposal will also remove the firm's exposure to the low-margin bioplastic bag market and to long running litigation, which has so far cost Biotec £4 million in costs, points out analyst Edward Hugo.

The broker rates the stock a 'buy' targeting a price of 0.18 pence, which represents 100 per cent upside from the current price of 0.09 pence.

City broker Seymour Pierce today repeated its buy advice on Gulf Keystone Petroleum (LON:GKP) in the wake of a thawing of relations between Erbil and Baghdad.

The improving political backdrop is positive for the Kurdistan-focused explorer and producer and has been behind the recent share price spike, according to analyst Angus McPhail.

The Seymour Pierce stock-picker restated his price target of 315 pence and ‘take-out’ valuation of 450 pence.

Westhouse Securities reckons Shaft Sinkers’ (LON:SHFT) contract win announced today will go some way towards the earnings recovery during the second half of the year.

The company, whose shares rose more than 5% on the news, said it has been selected to work on the Kibali gold mine in the Democratic Republic of Congo.

“The increased visibility over the second half of the financial year as implied by today’s announcement, in addition to near-term contract prospects underpin our Buy recommendation and target price of 100p,” said analyst Kevin Fogarty.

Anglo Asian Mining’s (LON:AAZ) news it has agreed a US$10.5 mln loan with the International Bank of Azerbaijan pleased broker Fairfax.

It called the new agitation leach plant, towards which the funds will go, “an important project for Anglo Asian”.

The broker retains its ‘buy’ rating and 69 pence target price for the miner.

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