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Westhouse repeats 'strong buy' recommendation on Shaft Sinkers, says shares oversold

Published: 20:45 17 May 2012 AEST

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Westhouse Securities upheld its ‘strong buy’ recommendation for Shaft Sinkers (LON:SHFT), arguing that shares in the company have been oversold over the recent weeks.

The decline in the share price was in line with other drilling companies. However, the broker noted that Shaft Sinkers is materially different as it is specialised than contract drilling as the nature of shaft sinking makes barriers to entry much higher than drilling.

"Shaft Sinkers has been marked down in recent weeks, in line with the drilling companies, which we view as overly harsh,” said Westhouse analyst Kevin Fogarty.

“The sinking of shafts takes longer to complete and therefore have less cyclical sensitivity; the long term nature of contracts provide long term visibility."

The analyst noted the company’s recent contract win from Hindustan Zinc, which took its order book to £401 million and underpinned Westhouse’s full year forecasts.

Fogarty also pointed out that today’s interim management statement from Capital Drilling said it enjoyed a good start to the year and reaffirmed its 2010 expectations.

“We view Shaft Sinkers shares as being oversold,” said Fogarty.

While upholding the ‘strong buy’ recommendation, the analyst repeated his 170 pence per share target price for the stock.

The current target is more than double the company’s market value of 80 pence per share at Wednesday’s close.

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