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The Expert View: First Quantum Minerals, Ophir Energy and HSBC
Our daily round-up of analyst recommendations and commentary, featuring Carnival, Ted Baker and Serco.
by Harry Brooks on Jun 13, 2012 at 05:01
We’ve rounded up some of the best comment from analysts to give you their views on First Quantum Minerals, Ophir Energy, HSBC, Carnival, Ted Baker and Serco.
Nomura backs First Quantum Minerals
Present at the briefing were the Zambian mining minister, the commerce minister and the development agency director. 'Overall, their discussion of the mining sector in the country incrementally reinforced our view that Zambia is more mining friendly than many believe,' Jones said.
The analyst said the main message from the event was that the new administration intends to promote mining investment rather than make any big changes to mining taxation. The mining minister said he has no intention of repeating the government intervention seen in the 1970s, when the sector was nationalised.
'Instead, the delegation stressed that it is determined to promote foreign investment in the country’s mining industry and that it would do this through a stable mining tax regime andinvestment in infrastructure,' Jones said.
Jones noted that FQM is set to derive about 70% of its earnings from Zambia over the next five years, and the supportive government is one of the reasons for the company being his top pick among copper stocks.
Shares in the group closed at £11.19 on Tuesday, down 29p or 2.53%.
UBS initiates Ophir Energy with 'buy' recommendation
Melanie Savage, analyst at UBS, has initiated coverage of Africa-focused oil explorer Ophir Energy (OPHR.L) with a 'buy' recommendation as she believes the market is undervaluing its Gabon assets.
'While Ophir still has seismic processing to complete, we think that the derisking from wells in similar plays is highly compelling and points to excellent source rock characteristics and reservoir properties,' the analyst said.
Savage also said Ophir's gas discoveries offshore Tanzania have the potential to support a two-train liquefied natural gas (LNG) project, while exploration in neighbouring Mozambique sets the stage for outside interest.
'Ophir is the most compelling M&A story in the sector, in our view. Given its exposure to two of the hottest exploration plays in Africa, as well as the read across from Cove which participated in large gas discoveries offshore Mozambique, we think that Ophir’s assets would be extremely attractive to a major or a national oil company,' she said.
Ophir is currently trading at a 25% discount to net asset value, Savage said, and she has a target price of 740p.
Shares in the group closed at 602.00p on Tuesday, down 2.5p or 0.41%.
Morgan Stanley increases HSBC's target price on cost-cutting potential
Chris Manners, analyst at Morgan Stanley, has increased his target price for banking group HSBC (HSBCA.L) as he believes the market has failed to appreciate the bank's cost reduction potential.
Against a backdrop of low growth Manners believe attacking the cost base is a logical move for HSBC. 'HSBC has been run as a federal group of banks, with overlapping systems and duplicated processes,' he said. Under a new management team HSBC has already announced a $2.5 billion to $3.5 billion cost-saving plan, he added.
'We expect that Continental Europe Retail Banking and HSBC France could also see more ambitious restructuring, given the target for the group is to achieve a 48-52% cost:income ratio over time.'
Manners said that wage inflation in Asia would present a burden for the group, along with increasing regulation. However, he retains his 'overweight' recommendation on the shares based on HSBC's strong funding and capital position and diversified income streams.
Shares in the group, for which Manners has a target price of 650p, up from 620p previously, closed at 539.40p on Tuesday, up 5.60p or 1.05%.
Deutsche Bank lifts target price for Carnival
Simon Champion, analyst at Deutsche Bank, has increased his target price for cruise line and hotel group Carnival (CCL.L) ahead of its second-quarter results as he expects lower oil costs and improving trading.
Champion noted that earnings have been dampened in recent years by rising oil costs, and of course the Costa Concordia tragedy in January led to a slump in the share price. However, he believes that oil hedging strategies and improving sales should lift the group when it releases its results on 26 June.
'Whilst US consumer sentiment has slipped somewhat in the last few months, recent US retail sales, healthy US hotel trading and Disney’s recent price rise (5-20%) should mean that US trading has remained robust,' he said.
'So all eyes will be on European trading – we have seen some press commentary regarding recovering sales in continental Europe, and poor weather may have been helpful in this regard.'
The analyst reiterated his 'buy' recommendation on the shares, and his target price from £21.00 to £24.50.
Shares in the group closed at £21.50 on Tuesday, up 29p or 1.37%.
Seymour Pierce raises target price for Ted Baker
Freddie George, analyst at Seymour Pierce, has increased his target price for fashion retailer Ted Baker (TED.L) following a surge in the share price over the past quarter and results that were in line with expectations.
In the 19 weeks to 9 June retail sales increased 16.2%, with like-for-like growth up 4.2%. Margins remained flat on last year, which George said was encouraging.
However, the analyst noted that there was a cautionary feel to the statement, which repeatedly referred to the 'uncertain' economic environment. He also said that the focus on overseas growth raises the risks of disappointment.
Nontheless, George has upgraded his target price from 750p to 850p following a quarter that saw a 15% rise in the price. He reiterated his 'hold' recommendation, and said that the company is highly rated at 18.7 times projected 2013 earnings.
Shares in the group closed at 892.50p on Tuesday, down 17.50p or 1.92%.
JP Morgan 'overweight' on Serco amid Vertex acquisition
Robert Plant, analyst at JP Morgan, has increased his earnings-per-share (EPS) estimates for the outsourcing company Serco Group (SRP.L) on news that it has acquired the business process (BPO) operations of Vertex Data Science.
Serco paid £55.5 million in cash for the Vertex unit, whose local government clients include Westminster and Thurrock councils, with the Child Maintenance and Enforcement Commission and Job Centre Plus among its central government contracts.
'The acquisition will add scale and scope to Serco’s recently created Global BPO division, and should improve the company’s prospects when bidding for the numerous upcoming central government middle- and back-office outsourcing opportunities,' Plant said.
Plant reiterated his 'overweight' recommendation on the shares, and has upped his 2012 EPS forecast by 0.7% and his 2013 estimate by 1.7%.
Shares in the group closed at 554.50p on Tuesday, up 8.50p or 1.56%.
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Look up the shares
- Ophir Energy PLC (OPHR.L)
- Serco Group PLC (SRP.L)
- Carnival PLC (CCL.L)
- Ted Baker PLC (TED.L)
- HSBC Holdings PLC (HSBA.L)
- First Quantum Minerals Ltd (FQM.L)