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The Expert View: Cairn Energy, Wood Group and Vedanta
by Harry Brooks on Aug 21, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Faroe Petroleum and Serco.
Our daily round-up of analyst recommendations and commentary, featuring Cairn Energy, Wood Group, Vedanta, Faroe Petroleum and Serco.
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Cairn set to re-rate, Jefferies argues
Now's a good time to climb on board Cairn Energy (CNE.L), with the shares trading on a discount and a big exploration programme about to kick off, according to Jefferies.
High-impact drilling programmes should commence this year in Morocco, Senegal and Greenland, analyst Brendan Warn said, and it's also lined up to participate in wells in the UK and Norway.
'We continue to like Cairn for its mix of strong downside protection, as the stock is currently trading close to cash plus tangible assets, together with significant upside potential in its exploration programme, which is almost ready to roll,' analyst Brendan Warn said.
'We believe this balance is one of the most attractive of its peers in the current market environment and that the shares will re-rate as the company moves into its high-impact exploration programme.'
Warn has a 'buy' recommendation on the shares and a 385p target price.
Shares in the group closed at 278p on Tuesday, up 1p or 0.4%.
Wood Group disappoints on cash generation
A lacklustre first-half update from energy services company Wood Group (WG.L) is likely to mean earnings estimate downgrades, Liberum Capital has warned.
Earnings from continuing operations over the six months were up 19% year-on-year at $243 million, but Liberum analyst Andrew Whittock was unimpressed by what he called 'surprisingly poor' cash generation.
'The outlook statement is mixed. Management describes activity levels as ''healthy'' and expects full year performance will be in line with expectations,' Whittock said. 'However, guidance for Engineering EBITA growth in 2013 has been trimmed from c.15% to 10-15% reflecting some project delays and further weakening in Canada.'
Whittock reiterated his 'hold' recommendation on the shares, awaiting more detail from the post-results presentation.
Shares in the group closed at 831p on Tuesday, down 72p or 7.9%.
Bank of America downgrades Vedanta
The completion of a corporate restructure at Vedanta Resources (VED.L) is good news for the diversified mining firm, but it's all already in the shares, according to Bank of America Merrill Lynch, which has downgraded from 'buy' to 'neutral'.
Vedanta yesterday announced that the merger of its Sesa Goa (India's largest iron-ore producer) and Sterlite Industries (a diversified miner) subsidiaries had been completed, under the umbrella of the newly created Sesa Sterlite group.
'While we view the completion of the deal positively, we think that it is already priced with VED having outperformed the SXPP [a basic resources index] by 20% year-to-date,' analyst Cedar Ekblom said.
'We think this is a case of ''travel and arrive''. We downgrade VED to Neutral, price objective unchanged at £14.00 set at 1x our net present value.'
Shares in the group closed at £11.73 on Tuesday, down 27p or 2.3%.
'Buy' Faroe Petroleum, Cantor Fitzgerald says
Cantor Fitzgerald has reiterated its 'buy' recommendation on Faroe Petroleum (FPM.L) on news it's gearing up for another high-impact exploration campaign.
Faroe yesterday updated on its operations spanning both sides of the Continental Shelf. It confirmed it's farming out part of its interest in the Novus and Solberg fields, and also announced it's to commence a five-well drilling programme.
'Following a disappointing 2012 drilling performance by the company’s high standards (2011: 66% success rate), it is pleasing to see Faroe engage in another high impact, fully funded exploration campaign, which boasts material upside against the backdrop of well managed capital expenditure,' analyst Sam Wahab said.
'Whilst production is at the lower end of the company’s range, this is typicalof the stage of maturity of the company’s assets, as well as the delay in infilldrilling. We retain our BUY stance, leaving our TP unchanged at 286p.'
Shares in the group closed at 129.3p on Tuesday, down 4.5p or 3.4%.
Wait and see for Serco, Shore Capital says
Next week's update from business process outsourcing giant Serco (SRP.L) look set to be good, but the shares won't perk up until the government finishes its audit of the company’s contract performance, according to Shore Capital.
'We have a sense from recent discussions with management and trading updates that the company has been performing well operationally,' analyst Robin Speakman said. 'Yet we feel that the market will not be looking at the numbers per se.'
The government audit probably won't be finished until the fourth quarter.
'We expect modest dividend growth for the H1 period, despite the FY2012 final results statement of a rebasing of the dividend to a higher level, reflecting the political sentiments from the UK investigation,' Speakman added. 'For the moment, HOLD.'
Shares in the group closed at 614.5p on Tuesday, down 1p or 0.2%.