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Housebuilders still on firm foundations - JP Morgan

Last updated: 06:06 02 Nov 2015 EST, First published: 04:06 02 Nov 2015 EST

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If there is a housing market downturn on the cards, broker heavyweight JP Morgan Cazenove certainly doesn't see it.

It expects 2016 to be another year of improved profitability and strong operating conditions for the UK's biggest housebuilders.

"While the sector is 38% up year to date, we still see an average 14% upside potential," notes analyst Emily Biddulph.

Crest Nicholson (LON:CRST) is upgraded to 'overweight' from 'neutral' while the target price is also lifted to 650p from 600p.

Bellway's (LON:BWY) target price went to 3,050p and 2,575p, while the current rating is 'overweight'.

Barratt Developments (LON:BDEV) however is downgraded to 'neutral' from 'overweight' and a target price lifted 5p to 665p from 650p.

Persimmon (LON:PSN) is cut to 'underweight' from 'neutral' but the target price moved to 2,060p from 2,020p.

The analyst said  she sees 20% upside potential to Crest compared to only 9% for Barratt and 3% for Persimmon.

"We expect Crest to continue to drive earnings growth and improvement in ROCE via what we view as a relatively low-risk, high-volume growth strategy."

Meanwhile, German bank Berenberg reckons the share price drop after medical device firm Smith & Nephew's (LON:SN.) quarterly numbers presents a good "entry point" for investors.

It rates the shares a 'buy' and has pushed up its target price to 1,300p from 1,250p previously.

"Over the next 12 months, we think delivery of better earnings and easing concerns over the margin can drive a modest re-rating," says analyst Tom Jones.

He says the broker's core thesis that the firm is about to enter a period of improved earnings growth is unchanged, even with a slightly lower near-term earnings.

"...we still do not think the market is giving the stock credit for its ability to deploy capital, be it through M&A or buybacks..."

"Finally, we continue to think there is a real possibility that S&N receives renewed interest from potential acquirers, which provides a degree of optionality to the stock."

Also in brokerworld today, outsourcing firm Serco (LON:SRP) was upgraded to 'sector perform' from 'underperform' by RBC Capital Markets.

Morgan Stanley goes to 'equalweight' from 'underweight' on oil titan BP (LON:BP.), which put out quarterly numbers  last week.

The oil major’s third quarter financials beat market expectations by a tad, but it was plans to rebalance the oil major’s books to prioritise the dividend that appeared to provide the greatest boost for investors.

There were also cuts to capital spending and operating costs as well as potentially yet more asset divestment over coming years.

To small caps and shares in gold miner Aureus Mining (LON:AUE, TSE:AUE) rose on Monday on news that it is once again crushing rock at its New Liberty project in Liberia during the commissioning phase.

The company had announced a temporary halt to processing after problems with a secondary crusher but a temporary machine was brought in that allowed operations to resume on October 28.

Broker Finncap retained its “buy” recommendation and 44p target for the shares, while Shore Capital was also a buyer without specifying a target.

However, Shore also sounded a note of caution, pointing out that the company’s first debt repayment is due in January 2016, so things could get tight.

Meanwhile, Mirabaud spelled out what it reckoned would be the precise impact on production.

“We believe that the plant stoppage will cause a quarterly production loss of as much as 25% (we had calculated it at 3 weeks),” wrote the broker.

“Consequently, we have lowered our Q4 2015 production estimate to 22,000 ounces from 30,000 ounces previously. As a result we are revising our 2015 production forecast to approximately 32,000 ounces (comprising around 10,000 ounces from Q3 and around 22,000 ounces from Q4).

Also in the miners today, following a site visit, City broker Northland is upbeat on mine developer Ariana Resources (LON:AAU), which has started work at the Kiziltepe mine on the Red Rabbit project, Turkey.

It is expected to kick off production in the second half of 2016 producing about 18,500oz Au eq (gold equivalent ounces) over eight years.

"Our site visit focused on the Kiziltepe Prospect where we viewed the Banu Vein, Arzu South, Derya Vein and Arzu North deposits from which the joint venture partners will produce the circa 148,000oz Au eq. at an average grade of 3.6g/t Au eq. over the life of mine," said Dr Ryan Long.

"With its large land holding Ariana has significant potential to expand on this initial production rate."

Sticking to the sector, a big year so far for junior gold explorer Mariana Resources (LON:MARL) is not being reflected in its share price, reckons City firm Northland, which has upgraded its rating to ‘buy’.

Mariana is in the ultra-high grade gold group of juniors, says the broker due to the results from its exploration at Hot Maden in Turkey.

A maiden resource of 2.9moz of gold equivalent at a 10.9g/t grade is exceptional says the broker, which has published forecasts in its analysis for the first time as a result.

The resource was based on only 17 holes but four additional resource expansion holes and five exploration holes already have already been completed in a new programme adding to the defined area of mineralisation.

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