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London broker comment corner; Petrofac, Integrated Energy Services, FirstGroup and Shell get rated

Proactive Investors brings you the buzz from the brokers, with a wrap of overnight comment from some of the biggest names in the London square mile.

From London overnight, Citigroup analysts turned the spotlight on oil and gas firm Petrofac (LON:PFC) today, rating the stock as "overweight", after a meeting with management highlighted growth opportunities across the business.

Citi said that while there may be some scepticism as the E&C (Engineering and Construction) opportunities shift offshore, the oil and gas specialist was rapidly building an impressive track record on conventional offshore field development projects and was benefitting from lower competition relative to some of the more mature onshore markets.

"Petrofac plans to continue to focus on conventional offshore as opposed to deepwater development projects where the emphasis is more on fulfilling local content requirements (fabrication) and much less on installation," said Citi.

Growth opportunities are underpinned by an attractive bid pipeline, particularly in the Integrated Energy Services (IES) division and within Offshore Engineering & Operations (OEO), it said.

"Opportunities are attractive in the core onshore Engineering & Construction (E&C) division, particularly in the second half of next year, added Citi.

Elsewhere, transport operator FirstGroup (LON:FGP) had its price target upgraded to 360 pence (from 307 pence) by financial heavyweight Morgan Stanley.

The investment bank also moved its rating from the stock to "equalweight" from "underweight".

Deutsche Bank produced a note on European integrated oil firms and says that the outlook for 2012 shows the "green shoots" of operational recovery.

"In our recent sector note we argued for a re-rating of the sector as it emerges from a period of transition characterised by weak growth and rising capital intensity," said the German bank.

"2012 will prove crucial in determining whether this thesis is on track as we look to strong production growth, rising cash flow and active exploration to challenge perceptions," said Deutsche analyst Lucas Herrmann, who says he see ample scope for are-rating for the sector.

Herrmann's top pick is Shell (LON:RDSB), which he rates a 'buy' with a target price of 2650 pence (current price: 2336.5 pence)

"Despite outperforming peers in 2011 we find valuation undemanding with delivery of cashflow growth the key driver in 2012," he said.

He also said that BG Group was a 'buy' (target price: 1850 pence) and remained a core holding supported by growth, tight LNG (liquified natural gas) markets and the possible crystallisation of Brazilian value.

Meanwhile, UK recruitment agency Michael Page Group (LON:MPI) had its 2011 EBITA estimate downgraded by Citi to £85 million (previously £90m) and  the 2012 EBITA estimate to £62 million from £108 mln(consensus: £100 mln), because of the sharply reduced gross profit growth assumptions from the firm, reported yesterday.

"Growth in its emerging markets has decelerated significantly, notably in Asia and Latin America.

"In continental Europe weakness has been most pronounced in Southern Europe and France, with Germany still holding up," said analysts at the Wall Street bank.

Citi added that it had "significantly" cut our 2012 estimated gross profit growth from 11 per cent to 1 per cent, but added: "We continue to like the stock and reiterate our 12-month 500 pence target price (current price: 346.20 pence)  and 'buy' recommendation."

Turning to the small caps, according to Edison Investment Research, everything is pointing to shares in Baobab Resources (LON:BAO), which has just reported positive scoping study results from its flagship project, rising to between 45 and 50 pence.

The Mozambique-focused company said at the end of November that the scoping study assessing the economic viability of its iron, vanadium and titanium project at Tete, returned excellent results.

One of the scenarios, which is preferred by the company, provides “compelling economics”, including a net present value (before tax) of US$1.4 billion; a 34-per cent internal rate of return; US$275 million cash flow after capex and a minimum of 25 year mine life.

The net present value (NPV) of this scenario is US$892 million, which is equivalent to 302 pence per Baobab share.

Kolar Gold (LON:KGLD) today unveiled some promising drilling results from the Chigargunta Eastern Lodes on its South Kolar licence area in India.

The company targeted the northern extension of the Eastern Lodes. The best hole, KCE 01, returned a 0.5 metre section at 4.9 grams per tonne of the precious metal from 41.55 metres and 1 metre at 3.36 grams from 43.55 metres.

“The three completed RC holes to date have confirmed the continuation of mineralised structures encountered in trenching,” said Ocean Equities in a research note today.

“The mineralised structures exposed in this trench correlates with the IP anomaly and further highlights that IP in the South Kolar belt is an important early stage exploration tool.”

Elsewhere, small cap explorer Triple Plate Junction (LON:TPJ) is in a unique position, having secured world-class partners to fund exploration in Papua New Guinea.

So says broker Ocean Equities, which has initiated coverage on the stock today.

In a wide-ranging research note, the broker highlighted that TPJ had secured joint ventures with three of the gold producing heavyweights - Newmont Mining Corporation, Barrick Gold Corporation, and Newcrest Mining
 
Metals Exploration (LON:MTL) has taken its holding in the flagship Runruno gold-molybdenum project in the Philippines from 85 percent to 100 per cent, after exercising its option agreement with Christian Mining Inc.

The acquisition cost what it called a “modest” US$44.44 per reserve ounce of gold acquired - 135,000ozs - for a total of US$6 million.

Today’s deal should be value accretive to the company as the firm has bought the stake at a reasonable price of US$44.44 per reserve ounce, says Fairfax analyst John Meyer.

The analyst reckons the current share price of 13.25p does not fully reflect the value of the Runruno project. Fairfax rate the stock as a ‘buy’ and it has raised its target price to 35p a share.

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