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Panmure polishes crystal ball as it looks to repeat 2012 success

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Sales of crystal balls enjoyed their usual seasonal surge, as brokers got to work on their predictions for 2013.

Panmure Gordon has done a trawl of the small and mid-cap players and come up with a baker’s dozen to keep an eye on.

Given that the broker’s picks for 2012 rose by an average of 46%, versus a 9% rise on the Datastream Total UK Market index, it might be worth paying attention.

In the oil and gas sector Panmure Gordon thinks Faroe Petroleum (LON:FPM), trading at a 30% discount to net asset value (NAV), is seriously undervalued.

It believes that “a modicum of success at the drill bit" will be a strong catalyst to the share price, which is currently languishing at 138p, well below the broker’s 205p target price.

“A robust drilling programme in 2013 with four wells scheduled for drilling in Norwegian waters could provide the catalyst for a rerating of the shares. The 78% Norwegian tax rebate mitigates the cost of exploration,” notes Panmure Gordon analyst Leila Reddy.

In the Support Services sector, Panmure Gordon has three very different picks: cross-border payments specialist Earthport; consumer electronics repair specialist Regenersis; and building materials distributor SIG.

The broker believes Earthport (LON:EPO) is at a pivotal stage of its development.

“Transaction volumes continue to accelerate month on month with the pipeline of work from new and existing customers also healthy. New service revenues should improve the revenue mix and keep gross margin trends ahead of our current assumptions,” the broker argues.

“Our target price was conservatively reduced from 28p to 24p to take account of the near term dilution from the recent placing. This would be a mere starting point if the company is able to execute across all of its longer term opportunities,” the broker believes.

The shares currently trade at 18.5p.

As for Regenersis (LON:RGS), things started looking up for the company in the second half of 2012, and the company looks well placed to make material progress in 2013 and beyond.

“With much reorganisation behind it and overseas expansion making good progress both in adding locations and services, development of in-field testing in the US could generate material levels of additional profit above and beyond that already anticipated. We increase our target price to 206p, and reiterate our ‘Buy’ recommendation,” the broker announced.

The shares have already doubled in price over the last year but at 142p remain well below Panmure Gordon’s target price.

SIG (LON:SHI) is trading at a 52-week high but Panmure Gordon thinks there is further to go, with UK energy regulations driving demand, although the group also has decent exposure to Germany and France.

“Enterprise value (EV)/sales is a good guide to value; at 0.3x it is well below the sector average as well as its own historic average (0.44x). Its P/E [price/earnings ratio] is also at a discount to its peers,” notes Panmure Gordon.

“The group is paying a dividend and management is focused on improving RoIC [return on investment capital]. Our 165p Target Price assumes EV/sales of 0.4x,” Panmure Gordon revealed.

Other stocks chosen by Panmure Gordon were: Asian Plantations (LON:PALM), Caretech (LON:CTH), Dolphin Capital Investors (LON:DCI), Gable Holdings (LON:GAH), Johnston Press (LON:JPR), Spirit Pub Company (LON:SPRT), Thorntons (LON:THT), WANdisco (LON:WAND), Zambeef (LON:ZAM).

Quick facts: Faroe Petroleum plc

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AIM:FPM
Market: AIM
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