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London broker roundup; DiamondCorp, Archipelago Resources, Mariana Resources and Range Resources
Analysts at Espirito Santo Investment Bank rate Mothercare (LON:MTC) a "sell" and say that the firm is not yet through the "pain barrier".
Yesterday, Mothercare revealed an underlying loss before tax of £4.4 million (H1 2010: £12.2 million profit) and a group pre-tax loss of £81.4 million (H1 2010: £0.3 million profit).
In the UK, it saw a weak first half with total UK sales down 4.3 per cent to £281.1 million and like-for-like sales down seven per cent.
"The risks remain heavily on the downside, but quantifying this is difficult with the key Christmas trading period ahead and Mothercare's UK business suffering from very high operational gearing," said Espirito in a note.
However, it added: "Reassuringly, there are no signs yet of any nervousness amongst International partners thanks at least in part to the long-standing nature of Mothercare's relationships here."
It added in a note that the company was in danger of being "strangled" by its own costs.
"Management needs to find a way to reduce the overhead cost base quickly and materially in order to be able to invest in the gross margin and stabilise the sales base, or else face a material P&L (and cash) hit as sales remain under pressure and operational gearing kicks in," it said.
Elsewhere, Shaft Sinkers Holding (LON: SHFT) is rated a 'buy' by broker Arbuthnot with a target price of 260 pence (current price: 100.50 pence).
The broker said the firm had issued a reassuring IMS covering the period since 1 July this year and "in spite of the operational issues highlighted earlier in the financial year, the group has continued to trade in line with expectations, with a mixed performance experienced across current projects".
"Management highlights that all other projects remain on track and ahead of budget," it added in a note.
Arbuthnot said the absence of new order wins in today's statement contributed to management's expectations of net cash of around £4 million at the end of the financial year.
"However, we are encouraged by the tendering opportunities across diverse geographies and scope for new contracts in the months ahead."
Broker Oriel Securities has updated its valuation for the assets put on sale by Lloyds' (LON:LLOY) following yesterday's acquisition of Northern Rock by Virgin Money.
Saying the deal had positive implications for Lloyds, Oriel analysts led by Mike Trippitt, upheld their “buy” recommendation for the bank.
Virgin bought Northern Rock, which was nationalised in 2008, from the government for £747 million and with the potential for a deferred consideration of a further £250 to £280 million. The sale is expected to complete before the end of the year.
Lloyds is currently in the process of disposing of 632 branches, £64 billion of assets and £32 billion of deposits. NBNK has reportedly offered £1.5 billion for the assets, while Co-operative bank has recently submitted a superior offer.
According to Trippitt’s estimates, based on the full potential price tag of £1.03 billion for Northern Rock, Lloyds’ disposal assets are worth 3.3 pence per share, short of Oriel's base valuation of four pence.
This means the bank’s overall business is worth 56 pence per share consistent with Oriel's 50 pence valuation.
Elsewhere, Charles Stanley has initiated coverage on DiamondCorp (LON:DCP) with an ‘add’ recommendation and an 11.5 pence price target – which is almost double the current share price.
In a note to clients, analyst Kieron Hodgson actually values the Lace Mine in South Africa at £55 million, or 23 pence a share.
But he applies a 50 per cent discount that reflects the risks associated in rehabilitating the operation, which can trace its roots back to the early 20th century, and recommencing production there.
The share price, down around 40 per cent to date, under-estimates the mine’s potential, according to Hodgson. It also ignores completely the company’s Jwaneng South Joint Venture, he adds.
Following an update from precious metals miner Archipelago Resources (LON:AR.) earlier this month, independent broker Oriel Securities believes now is the time for the firm to focus on exploration after it reached full production capacity at its existing Indonesia gold operation.
In a research note titled ‘Ready to grow’, Oriel said that Archipelago had achieved full capacity production at its Toka Tindung gold operation located at North Sulawesi in Indonesia.
Fox-Davies Capital nearly doubled its target price for Mariana Resources (LON:MARL, TSE:MRY) today after major firm AngloGold Ashanti took a large stake in the company, which the broker said negated the principal risk to the share price.
Mariana yesterday announced a placement of 45 million shares at 12 pence per share – a 41-per cent premium to Wednesday’s closing price of 8.5 pence – worth a total £5.4 million, giving AngloGold a 19.99 percent stake.
Rose drew attention to the recent drilling results, which outlined a potential additional deposit, adding a large amount of upside to the current resource. In addition, Rose saw the investment highlight the prospectivity of the Desseado Massif.
Besides Las Calandrias, the area also hosts several multi-million ounces deposits including AngloGold’s Cerro Vanguardia, Goldcorp’s Cerro Negro and Coeur d’Alene’s Mina Marta.
“We continue to believe that Mariana represents a cheap entry into this hot exploration address...we believe that companies such as Patagonia Gold and Extorre show the value that Mariana could achieve if it continues to prove up resources and advance towards production,” said Rose
As a result, Rose upheld his “buy” recommendation for the stock and increased its target price from 12 pence to 22 pence.
Old Park Lane Capital said the six fold increase in Range Resources’ (LON:RRL, ASX:RRS) proved reserves in Trinidad could lead to an “appreciable” upgrade in the broker's valuation of its Trinidad assets.
The oil explorer announced that its proved reserves in Trinidad had increased by 490 per cent to 15.4 million barrels of oil.
Gray said the news was “particularly positive” as the increase in proved reserves adds to Range’s previously reported proved, probable and possible reserve base.
“Consequently, we will look to upgrade our Trinidad valuation appreciably upon confirmation of the details of a development programme commencing in 2012,” said Gray.
Following today’s report, the analyst upheld both his “buy” recommendation for the stock and his target price of 27 pence per share.
