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The Expert View: Max Petroleum, G4S and Chemring
Our daily round-up of analyst recommendations and commentary, featuring Rightmove and Tertiary Minerals.
by Harry Brooks on Aug 29, 2012 at 05:01
We’ve chosen some of the best comment from analysts to give you their views on Max Petroleum, G4S, Chemring, Rightmove and Tertiary Minerals.
Merchant Securities downgrades Max Petroleum to 'sell'
Brendan Long, analyst at Merchant Securities, has downgraded oil explorer Max Petroleum (MXP.L) from 'hold' to 'sell' on concerns about falling reserves estimates and possible cash flow issues.
In the six months to the end of March Max cut its proven and probable reserves estimate by 20% to 10.6 million barrels, Long noted.
The analyst also flagged a lack of progress on financing as a worry. 'We are increasingly alarmed that debt negotiations with the Macquarie bank have not resulted in an announcement,' he said.
'At present the company owes $55.2 million under its Macquarie facility ($49.2 million of which is due 31 March 2013, $2 million is due 31 January 2013 and $4 million is due 28 February 2013) and $85.6 million under its convertible bonds (due 8 September 2013).'
The company remains at the mercy of its creditors, he said, as it does not have the revenues needed to repay its debt.
Shares in the group closed at 3.75p on Tuesday, up 0.04p or 1.08%.
Panmure Gordon stays at 'hold' on G4S despite £50 million Olympics write-off
Mike Allen, analyst at Panmure Gordon, has increased his target price for G4S (G4S.L) in spite of the security firm taking a £50 million hit from its failure to provide enough staff for the Olympics.
Yesterday's half-yearly report showed operating profits before tax of £236 million, unchanged from the same period last year, with sales growth of 5.1%. The interim dividend is unchanged at 3.42p, which Allen said suggests caution from the management.
Nonetheless, his target price for the group goes from 236p to 262p, and he retains a 'hold' recommendation on the shares.
'Given its defensive characteristics and exposure to Emerging Markets, which should not be impacted by its UK business, we believe an interesting entry point would be below 230p,' he said.
Seymour Pierce analysts also lifted their target price to 255p, although they added that ‘is too early to assess the full ramifications of this debacle’.
Shares in the group closed at 261.5p on Tuesday, down 4.7p or 1.77%.
Oriel puts Chemring under review amid profit warning
Guy Brown, analyst at Oriel Securities, has put defence contractor Chemring (CHG.L) under review following a profit warning.
Although revenues rose 4% to £165 million in the three months to the end of July, Chemring, whose shares have gained recently following a takeover bid, has cut its full-year operating profit outlook by £15 million. It warned that its order book at the end of July was £910 million, 9% lower than this time last year.
The trading statement cited software problems at its Florida subsidiary and delays in producing a new mine-clearing product as the reasons for the warning, alongside an 'uncertain' outlook for the US market.
Brown said the warning highlights the seriousness of the issues facing the business. 'Chemring is facing a potential cash crisis after receiving over £50 million in excess placing for an acquisition never completed in 2011,' he added.
'While we saw the Carlyle approach as a potential positive catalyst for change within the group, the issues are larger and worse than we expected. Hence we are placing our recommendation under review until we have greater insight into the issues within the company.'
Shares in the group closed at 324.7p on Tuesday, down 45.8p or 12.36%.
Westhouse says 'reduce' RightMove
Roddy Davidson, analyst at Westhouse Securities, has initiated coverage of Rightmove (RMV.L) with a 'reduce' recommendation, suggesting it's time for investors to take profits on the property website.
'We see Rightmove as a high quality company with a strong track record and attractive growth prospects,' Davidson said. 'However, we believe its share price has run too far following a period of sustained outperformance.'
Davidson added that he expects the company to continue to improve its average revenue per advertiser as a result of its market dominance, and he forecasts earnings per share growth of 79% over the next three years.
However, the shares are well ahead of his £14.34 target price, which combines dicounted cash flow and growth forecasts modelled on Moneysupermarket.com. 'We calculate that the group’s stock is currently c.12% overvalued and, more importantly, we see little scope for upgrades or other performance catalysts in the immediate future that would justify a higher valuation,' he concluded.
Shares in the group closed at £15.84 on Tuesday, down 42p or 2.58%.
Seymour Pierce's target price on Tertiary Minerals rises 20%
Matthew McDonald, analyst at Seymour Pierce, has raised his target price for AIM-listed miner Tertiary Minerals (TYM.L) after a scoping study of its Lassedalen fluorspar project in Norway suggested the prospect is commercially viable.
The study suggests the project could generate $325 million in revenue over a 6.6 year life for a $78 million initial cost, Tertiary said. Fluorspar is used as a flux to lower the melting point of steel, and is also used to make enamels.
McDonald has significantly increased his target price having factored in the news. 'Including Lassedalen’s development in our production profile from FY17E onwards lifts our net present value for Tertiary by 30% to 52p, some 10x the current share price,' he said.
'This gives a target of 30.2p/share to which we add 0.2p/share for the shareholding in AIM-listed Sunrise Resources. Hence our overall target price is lifted by 20% to 30p.'
Shares in the group closed at 5.9p on Tuesday, down 0.1p or 1.67%%.
More about this:
Look up the shares
- Tertiary Minerals PLC (TYM.L)
- Rightmove PLC (RMV.L)
- G4S PLC (GFS.L)
- Max Petroleum PLC (MXP.L)
- Chemring Group PLC (CHG.L)