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London broker comment corner; Deutsche Bank rates Balfour Beatty a buy

Tuesday, March 06, 2012 by Proactive Investors

London broker comment corner; Deutsche Bank rates Balfour Beatty a buy

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: Miner Kazakhmys (LON:KAZ) has been downgraded to 'neutral' from 'buy' by Bank of America Merrill Lynch.

Analyst Jason Fairclough said in a note that while the firm's 2011 EBITDA (earnings before interest, tax, depreciation and amortisation) estimates were broadly in line with street estimates, guidance for grades and costs was decidedly negative.

He targets a price of 1200 pence for the stock (current price: 975 pence).

He also noted that the company was "about to embark" on two relatively large projects - Bozshakol and Aktogay.

He pointed out that Bozshakol is expected to produce about 100,000 tonnes per year of copper and is already approved with a capital budget of US$1.8bn.

"Given prevailing industry capital cost inflation and recent high profile capex blow-outs from the large blue-chip miners, we see upside risk to this figure," he noted, while adding that the Aktogay project, was, in Bank of America Merrill Lynch's view a "less compelling project".

Wall Street bank Citi has today downgraded engineer Weir Group (LON: WEIR) to 'sell' from 'neutral' and revised its target price downwards to 1830 pence, from 1950 pence.

Citi said its 'sell' case was based on the view that there will be limited growth in the oil and gas business in 2012 estimates and 2013 estimates and, that margins hat margins are likely to reduce back in line with the peer group in this segment.

Analyst Mark Fielding said that, due to the strong order backlog in the shale oil & gas business, Citi was only slightly below consensus for its 2012 estimates.

However, Fielding said he saw larger risk for the 2013 estimates.

Elsewhere, pest control specialists Rentokil Initial (LON:RTO) is rated 'underweight' by City firm JP Morgan Cazenove, which has, however, upped its price target for the stock by 8 pence to 65 pence a share.

The analyst says Rentokil shares are not expensive compared to the Business Services sector but he believes the earnings outlook remains negative and that some of Rentokil’s divisions face a number of structural challenges.

Elsewhere, Deutsche Bank has reiterated its 'buy' stance on construction firm Balfour Beatty (LON:BBY) with a target price of 315 pence.

"We upgraded Balfour Beatty to 'buy' in our 2012 outlook note as it ticked the boxes for our key sector themes," said analyst Manu Rimpela.

He added that the firm's valuation was still looking attractive with Contracting operations' implied valuation at around 3 times  EBITDA.

"On top of this the shares offer a 5 per cent sustainable dividend yield," said Rimpela.

Meanwhile, Goldman Sachs has increased its target price on First Quantum Minerals (LON:FQM) to 2000 pence from 1900 pence and maintains its 'conviction buy' rating.

In the small caps, stem cell specialist Epistem’s (LON:EHP) sales and marketing deal with Indian genomics firm Xcelris Labs for its tuberculosis test, announced today, could provide a case study for future partners, according to broker Merchant Securities.

Merchant said the agreement is a long-term distributor agreement with increasing year-on-year off-take volumes for Genedrive units and assays.

“Once through clinical and regulatory approval process, hopefully in H2, the agreement will provide a significant step up in our revenues,” it added.

Merchant does not expect the company to put forecasts into the market until it is through the clinical/regulatory process, but may provide a further update at the upcoming interims.

The broker added: “The investment of profits and cash flow into creating this platform is starting to come good”,  and it still recommends Epistem as one of the 12 best buy picks for 2012.

Elsewhere, South America focused firm Orosur Mining (LON:OMI, CVE:OMI) said today it has started drilling on its 100 per cent owned and previously producing Mahoma project in Uruguay, which could ultimately add up to 30,000 ounces to annual production from the country.

Chief executive David Fowler said: "With a historical non NI43-101 compliant reserve of 281,000 tonnes at a grade 9.36 g/t au and significant exploration upside, we believe that Mahoma could ultimately deliver an increase in Orosur’s Uruguayan production by 25,000 to 30,000 ounces per annum with minimal capital.”

In a note, Cannacord said that the main issue for Mahoma will be the high transportation costs.

However, it pointed out that the company planned to send ore from another deposit - Crucera (22,000 ounces at 4.6g/t open pit reserve) -  to be processed at the San Gregorio plant, also 400km away, at a positive margin.

"Mahoma looks likely to be larger and have higher grades than Crucera. We expect Mahoma to be an underground operation, which should partly offset the positive impact of higher grades on costs," said Cannacord, maintaining its 'buy' recommendation on the stock and 115 pence a share target.

 

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