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The Expert View: Avocet Mining, IPF and Mothercare
by Harry Brooks on Mar 11, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including SThree and Photo-Me International.
Our daily round-up of analyst recommendations and commentary, featuring Avocet Mining, IPF, Mothercare, SThree and Photo-Me International.
Westhouse cuts target price for battered Avocet Mining
Westhouse analyst Rob Broke has reduced his target price for Avocet Mining (AVM.L) on the back of last week's disappointing annual update.
Across the board it was a tough year for the West African gold miner, with production falling from 166,744 ounces to 135,189, cash costs rising from $693 to $1,000 per ounce and the group booking a $135 million impairment on its Inata mine in Burkina Faso, its only operational mine. The latter followed a halving of estimated mineral resources at Inata to 0.92 million tonnes after the company discovered the gold deposits were more complex than first thought.
'The focus now will be on whether the company can address the current hedge position [on the gold price] in a way which would free up cash flow to develop potential growth options,' the analyst said. 'We maintain our neutral recommendation and lower our target price from 35p to 21p.'
Shares in the group closed at 22.3p on Friday, down 1.3p or 5.3%.
IPF looks fairly priced, Berenberg Bank says
Berenberg Bank analyst Pras Jeyanandhan has increased his target price for International Personal Finance (IPF.L), the emerging market consumer finance company, following a solid trading update, though he warned the shares are no longer undervalued following a strong run.
Adjusted pre-tax profits for 2012 came in at £95.1 million, broadly in line with consensus estimates. Earnings per share of 29.42p beat estimates, although Jeyanandhan said this was flattered by a one-off tax adjustment.
The analyst noted that the shares have roughly tripled since January 2012 as the company, which operates in Poland and Hungary, was rerated as the eurozone crisis eased.
'Following a stunning run in the share price and IPF’s now rich multiple vs. other UK specialist lenders, this is no longer an underappreciated story,' he said. His target price rises from £3.80 to £4.15. 'Given the rich valuation and with fewer catalysts on the horizon, we retain our hold recommendation.'
Shares in the group closed at 484p on Friday, up 10p or 2%.
'Sell' Mothercare, Cantor Fitzgerald says
Mothercare (MTC.L)'s valuation of 21.6x forward earnings remains too steep, according to Cantor Fitzgerald analyst Kate Calvert, who has reiterated her 'sell' recommendation.
On Thursday Simon Calver, who took over as CEO at the end of April 2012, held a lunch for analysts, which Calvert attended. 'It was a frank discussion on where Mothercare UK is today and where he wants to take the brand,' the analyst said.
'The organisation has been restructured along functional lines with new senior managers in all areas except International,' she noted. 'The team has started to address the pricing architecture by lowering entry price points on clothing in double digit percentage terms, up innovation within ranges and improve merchandising.'
Nonetheless, she believes repositioning the brand will take longer than the three years outlined in Calver's 'Transformation and Growth' plan. 'Competition is fierce with most of Mothercare’s core product categories having been commoditised by pure online players such as Amazon and the food retailers.'
Shares in the group closed at 291.5p on Friday, up 9.5p or 3.4%.
Shore Capital puts SThree under review amid trading mix shift
Shore Capital analyst David O’Brien has put his recommendation for SThree (STHR.L) under review after the first-quarter update revealed what he called 'significant' changes in the recruitment firm's trading patterns.
Net fee income fell a modest 3% year-on-year, but O’Brien said the changes in the mix are the significant thing to note. 'The UK, Benelux and France continue to be very weak in terms of permanent placements,' he said, 'with only the UK demonstrating a weak performance year-on-year (down 4%) in terms of contract placements.'
O’Brien said that given the weakness of the permanent placements market the modest net fee income decline was very strong, and highlights the strength and resilience of the contract business. 'However, we are likely to flex our estimates today and ahead of this we move our recommendation to under review.'
Shares in the group closed at 364p on Friday, down 3.5p or 1%.
Finncap lifts target price for Photo-Me
Photobooth operator Photo-Me International (PHTM.L) offers an 'increasingly credible and compelling investment case,' according to Finncap analyst Mark Paddon.
Friday's interim management statement, covering the period from 1 November 2012 to date, said 'profitability overall has been substantially better than for the same period last year, and in the year to date the group has made strong progress despite a currency headwind'.
Paddon has upped his target price on the back of the update. 'We believe the prospect of potential forecast upgrades, strong positive cash flow and a 30% market yield premium before any potential further special dividend payments at an April 2014 enterprise value to pre-tax earnings valuation of less than 5x provides an increasingly credible and compelling investment case. We have increased our target price to 90p.'
Finncap acts as a market maker for Photo-Me International.
Shares in the group closed at 75p on Friday, down 0.3p or 0.3%.