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Friday's London broker comment corner; Goldman Sachs, RBS, Ocean Equities, Fox-Davies share wisdom
From London overnight, Goldman Sachs analyst Franklin Walden says he believes the outlook for the UK food retail sector outlook has significantly worsened since Tesco's (LON:TSCO) profit warning last week.
"Tesco announced margin investment, and as a result we expect negative pressure on sector profitability, he said today in a note.
He has reduced full year 2013 EBIT forecasts by 21.3%, 5.6% and 6.5% for Tesco, Morrisons (LON:MRW) and Sainsbury (LON:SBRY) respectively.
"The outlook for returns over the next two years has deteriorated and in particular we see expansion by SBRY and MRW as returns destructive," added the analyst.
Meanwhile, ING maintains its 'sell' stance on Tesco (target price: 280 pence, down from 360 pence) and said as well as fears on lower UK trading profits, it is concerned about about future property gains and a growth slowdown in Korea and China.
It believes the market is "still overlooking property repercussions".
In telecoms, RBS rates Vodafone (LON:VOD) a 'buy', saying that the fundamentals outweigh the negative revisions.
The bank has cut its EPS forecasts for the year to March 2013 by 2.3 per cent to reflect currency trends but also some modest impact from weakening macro trends, it added.
"Short-term profit taking could follow, but Vodafone's diverse asset portfolio, strong management team and financial strength make us stronger buyers on any weakness," said analyst Lawrence Sugarman.
In an extensive analysis of European pharma companies, the research arm of Barclays Capital said it expected the sector to remain a relative safe haven for investors nervous about a worsening European credit crisis during the first half of this year.
If a positive resolution to the crisis is found, it said, its analysts maintain a 'market weight' rating on the Health Care sector.
It rates AstraZeneca (LON:AZN) as underweight, targeting a price of £33, GlaxoSmithKline (LON:GSK) is rated 'equal-weight' with a target price of £15.75. Shire (LON:SHP) is rated 'equal-weight' with a target price of £21.50.
The market reacted negatively to Tullow Oil's (LON:TLW) statement yesterday, and focused mainly on near- term issues, says Credit Suisse today, which rates the stock 'outperform'.
The group said its production undershot its own, already conservative guidance for 2011 - with the main drag on output being the stuttering performance of the Jubilee Field off the coast of Ghana, the company’s main producing asset.
Credit Suisse said although some uncertainty remained on near-term Jubilee production, Tullow was confident in receiving Ugandan government approval soon for the Ugandan farm-out.
"The $2.9bn cash inflow from the farm-out will alleviate any funding concerns and provide financial flexibility to Tullow," it said.
Analyst Ritesh Gaggar said Credit Suisse had revised its target price for Tullow to 1,733p (from 1,776p), but reiterated its "Outperform" rating and "would be buyers on weakness".
Turning to resources, mining giant BHP Billiton's (LON:BHP) second quarter production figures beat RBC Capital Markets' forecasts and consensus in iron ore, while copper and petroleum products were both ahead of RBC'S forecasts, it said in a research note.
"Overall this was a good production report with higher copper and iron ore contributing to potential upgrades in some estimates for FY12, albeit constrained to some extent by opex inflation and the negative impact of provisional pricing which is being felt by the industry generally," said analyst Des Kilalea.
Mining firms took centre stage in the small caps.
Ocean Equities said positive catalysts for Nyota Minerals' (LON:NYO, ASX:NYO) share price will be the release of a definitive feasibility study for the Tulu Kapi project due this half and the receipt of a mining licence.
Analyst Christopher Welch said the DFS in H2 2012 will demonstrate the project's commercial viability while, in the medium term, the mining licence - the first to be granted to a public company in Ethiopia - will act as positive catalysts.
The company released a drilling update yesterday.
Elsewhere, analysts following Aureus Mining (LON:AUE, TSE:AUE) believe the stock deserves a premium valuation.
Its shares are outperforming its rivals on London’s AIM market. Since the turn of the year the stock has gained over 20 per cent, rising from 68p to 85p.
“Given the quality of Aureus’ assets, we think the shares should be valued above most of the peers, and certainly the peer average,” said Singer Capital analyst Charlie Long.
Meanwhile, Seymour Pierce said the maiden resource statement for the Lassedalen fluorspar project unveiled by Tertiary Minerals (LON:TYM) yesterday was conservative and raised its price target on the company by five percent to 31.5 pence.
The maiden Lassedalen resource – which is compliant with the JORC standard – stands at 4 million tonnes at a grade of 25 per cent flourite containing one million tonnes of fluorite.
Asa Bridle, of broker Seymour Pierce, pointed out that the cut-off grade of 11 per cent used in the resource estimate was based on a fluorspar price of US$200 per tonne, which is 37 percent below current spot prices.
The new estimate has increased the overall resources included in Bridle’s analysis by 12 percent as it includes a 50 percent discount to the historical resource estimates for Lassedalen at 0.6 million tonnes.
The same broker has raised its price target on Rambler Metals and Mining (LON:RMM, CVE:RAB) to 62 pence from 55 pence and reiterated its ‘buy’ recommendation for the stock.
The group told investors yesterday that it expects to start production of copper concentrate from its flagship Ming mine in Canada in the second quarter of the calendar year.
In the meantime, it is generating revenue with continuing gold pours. The first dore bars were produced last month and to date, Rambler has completed three gold pours for a total of 2,446 ounces.
In other coverage, Fox-Davies reiterated its ‘buy’ recommendation on Mariana Resources (LON:MARL, TSE:MRY) with a target price of 22 pence, more than double yesterday’s closing price of 9.88 pence per share.
Mariana yesterday announced it signed an option agreement to acquire the El Aguila gold-silver property adjacent to its Picadero project from Argentinean private company Winki SA.
The broker said the property complemented its position in the Desseado massif of Argentina and showed good potential.
