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The Expert View: Aurelian, Cape and ENRC
by Harry Brooks on Nov 14, 2012 at 05:01
Our daily round-up of analyst recommendations and commentary, also featuring Betfair and Cineworld.
Our daily round-up of analyst recommendations and commentary, featuring Aurelian, Cape, ENRC, Betfair and Cineworld.
FinnCap downgrades Aurelian on San Leon Energy merger
FinnCap downgrades Aurelian on San Leon Energy merger
Will Arnstein, analyst at FinnCap, has downgraded European oil and gas explorer Aurelian (AUL.L) from 'buy' to 'hold' on news the group is to merge with Poland-based San Leon Energy.
Under the proposed deal Aurelian shareholders will gain 1.3 new San Leon shares for each Aurelian share, leaving them with 34% of the new company in all. The deal values Aurelian at £61.1 million, a premium of about 13% to its value before the deal.
However, Arnstein isn't convinced this is a good deal for shareholders. 'As a diversified and cash poor explorer and producer we believe the proposed merger with Aurelian makes strategic sense for San Leon giving them $52 million of cash, strong relationships with PGNiG and a larger acreage position in Poland.
'For Aurelian shareholders, we see few benefits and believe the modest 13% premium offered is insufficient, particularly when compared with the share price at the time it launched the strategic review in February.'
The analyst's target price drops from 22p to 10.9p.
Shares in the group closed at 9.64p on Tuesday, down 0.61p or 5.95%.
UBS keeps faith with Cape after profit warning
Caroline Hickson, analyst at UBS, has reiterated her 'buy' recommendation on industrial services provider Cape (CIU.L) following Monday's profit warning and subsequent share-price crash.
Alongside the latest in a series of profit warnings Cape announced that its finance director, Richard Bingham, is to step down after a review of its troubled Australian business raised questions over the valuation of ‘certain balance sheet items’. The shares plummeted almost 30% after the news.
However, despite cutting her target price by 55p to 265p, Hickson is keeping the faith. 'Our buy rating on Cape was premised on our view that although facing significant challenges, Cape’s share price did not reflect the underlying strength of the business (in particular the steady UK business), its exposure to long-term energytrends, and the potential for recovery under the new CEO,' she said.
'While the 3Q IMS was disappointing, it has not materially changed our view of the stock and we see the share price move as overdone.'
Shares in the group closed at 182.5p on Tuesday, down 3.5p or 1.88%.
Nomura drops target price for ENRC, slates 'half-baked' strategic plan
Patrick Jones, analyst at Nomura, has cut his target price for Eurasian Natural Resources Corporation (ENRC.L), warning of uncertainty about the miner's expansion plans and increasing stress on the balance sheet.
The group recently revised its growth strategy with a focus on copper extraction from the Democratic Republic of the Congo (DRC) in the short term and iron ore from Kazakhstan longer term. However, Jones said the plans still look 'half-baked'.
'This revised strategy positively recognises near-term balance sheet constraints and greenfield execution risks, we believe. However, looking deeper, we fail to see anything incrementally positive for ENRC on a project-by-project basis,' he said.
'The Kazakh iron expansions have yet to be de-risked, while the DRC copper projects have blown out their capex budgets and continue to face their own geopolitical hurdles.'
ENRC has gone from having net cash at the end of 2009 to about £2.5 billion of debt, Jones added, and the management has indicated this is likely to get worse. The analyst's target price drops from 375p to 275p, and he reiterated his 'reduce' recommendation.
Shares in the group closed at 289.9p on Tuesday, up 0.8p or 0.28%.
Peel Hunt welcomes new chief exec at Betfair
Nick Batram, analyst at Peel Hunt, has reiterated his 'buy' recommendation for online gambling operator Betfair (BET.L) despite cutting his target price, saying the new chief executive has the vision to get it back on track.
'The past 12 months has seen Betfair fall into relative anonymity as far as the quoted gaming sector is concerned,' Batram said. However, the appointment of Breon Corcoran (formerly second in command at Paddy Power) should reinvigorate the business.
'Betfair now sees itself as a gaming company with a unique technology platform, rather than a technology business that happens to do gaming,' the analyst said. 'The closure of the exchange in Germany and news that Betfair is making around 50 redundancies is, we believe, a sign of things to come.
'There appears to be an opportunity to significantly improve the effectiveness of IT spend, while at the same time increase the use of third-party suppliers outside of the exchange business.'
Batram has a target price of 863p, down from 871p previously.
Shares in the group closed at 744p on Tuesday, up 4p or 0.54%.
Canaccord says 'buy' Cineworld as Bond puts bums on seats
Wayne Brown, analyst at Canaccord, has reiterated his 'buy' recommendation on cinema chain Cineworld (CINE.L) following a solid trading update and a promising slate of new releases in the final quarter of the year.
In the 19 weeks to 8 November total revenues fell 1.4% on a year ago, although over the past nine months revenues are now level with a year ago. The trading update said the Olympics was responsible for lower ticket sales.
However, the final quarter of the year is shaping up to be a good one. The new James Bond film, which was released on 26 October, has performed exceptionally well, grossing over £60 million nationally in its first two weeks of play. On top of that there's the concluding part of the Twilight saga, which is due out soon, and The Hobbit on 14 December.
Brown said Cineworld's ambitious plan to open 25 new cinemas by 2017, rising online bookings and a good film slate for 2013 all support his 'buy' investment case. He has a target price of 280p.
Shares in the group closed at 248.81p on Tuesday, up 10.06p or 4.21%.