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The Expert View: Falkland Oil, Chemring, Mitchells & Butlers, De La Rue

Our daily round-up of analyst recommendations and commentary on stocks in the news. 

by Chris Marshall, Gavin Lumsden on Nov 28, 2012 at 05:01

Falkland Oil and Gas: some hope remains after latest crash

Analysts downgraded Falkland Oil and Gas (FOGL.L) as its volatile shares almost halved in value yesterday after the oil exploration company abandoned its Scotia well following disappointing drilling results.

The share price plunged 48%, or 30.25p, to an all-time low of 32.75p after the company said a reservoir at the Scotia exploration well appeared to be of poor quality, although it remained positive that further tests could find a higher quality source in the area.

Brendan Long of Merchant Securities cut his recommendation from ‘buy’ to ‘sell’ and slashed the target price to 57.7p, based on the cash value of the business and the potential value left in its other Loligo well.

Cannacord Genuity lowered its rating from ‘speculative buy’ to ‘hold’ with a 40p target for the shares, saying: ‘Hopes for an oil find – the real potential value driver – have not entirely gone, and much of the technical focus in 2013 will be to try to identify the possible confluence of potentially oil prone areas with better reservoir quality.’

Falkland Oil & Gas is a top 10 holding of the Ignis UK Focus fund, run by Mark Holden. The fund also holds Borders & Southern, another exploration company active in the Falklands.

Chemring rises after clarifying 2012 was a bad year

Chemring shares rose 3.5% or 8p to nearly 238p yesterday as the defence group attempted to draw a line under what it said had been an ‘extremely disappointing’ year.

Shares in Chemring (CHG.L), which makes flares, ejector seats and equipment to detect explosives, have fallen by a third in the past three months as the company has issued two profits warnings due to cuts in military spending in the US and UK.

In its first trading statement since Mark Papworth took over as chief executive the company said full-year turnover would reach £740 million, 2% up on last year, and that its order book would stand at around £760 million at the end of the year, down from £878 million a year ago.

Richard Curr, head of dealing at Prime Markets, responded by slapping a ‘buy’ on the stock, with a price target of 305p and a stop loss of 230p, saying, ‘We believe a turning point has been reached today as a result of (a) clarification of the year end position in regard to turnover, and order book levels (b) a reduction in debt levels and (c) the prospect of unveiling of the new CEO's strategy in January. If the shares hold on to the 20-day moving average level for this week, we believe the fundamentals are now in place to support a recovery and return to October levels around 300p.’

David Buxton, analyst at FinnCap, said his forecasts and rating were under review.

Mitchells and Butlers needs to ‘turn a corner’

Analysts at Liberum left their rating on Mitchells and Butlers (MAB.L) on ‘hold’ after full-year results from the All Bar One operator came in just below their forecasts.

Liberum described the 2012 figures from the pubs and restaurant group as ‘slightly soft’. Although pre-tax profits of £166 million in the year to 22 September were below its forecast of £172 million, they were ahead of last year's profits of £156 million. Net debt was slightly higher than Liberum's forecast at £1.84 billion.

The company, which last year fended off a bid from leading shareholder Joe Lewis, the billionaire currency trader, said like-for-like sales in the first eight weeks of the new financial year had been flat. Elpida, the investment vehicle of billionaire horseracing entrepreneurs John Magnier and JP McManus, also holds 22.5%.

Mitchells & Butler shares have risen 33% this year but fell 5.3% yesterday to 313.5p.

Liberum said: ‘The quality of the asset base is not in doubt and we view Alistair Darby’s recent appointment as CEO as a positive signal. However, we look for further reassurance that MAB has turned a corner and seek to understand Mr Darby’s strategic vision for the group after three turbulent years.’

De La Rue: Investec unmoved by money-printer’s profit rise

A 9% rise in pre-tax profits at De La Rue (DLAR.L) was not enough to prompt Investec analysts Thomas Rands and Chris Dyett to bump up their recommendation on the money- printing company’s shares, maintaining their ‘hold’ rating.

De La Rue’s results were driven by a 16% in profits in its solutions business.

The analysts said that De La Rue had not provided enough new information in Tuesday’s interim results announcement to prompt a change in their target price either, which they maintained at 940p.

The Investec duo point to delays in orders, which the company said would result in lower profitability in its banknote printing division than previously forecast. ‘Whilst the company is confident that these contracts are delayed rather than lost, we have not upgraded our outer year estimates as capacity is likely to be constrained,’ the Investec note read.

‘However, our assessment is that they should help underpin forecasts,’ they added.

Panmure Gordon maintained their ‘hold’ stance on De La Rue shares unchanged too.

Shares in the company finished Tuesday down 1% to 988p.

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