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Jul 2014
2020 foresight

Kier’s Capital Markets Day both provided the most explicit long-term earnings targets it has issued to date and went further than before in articulating our key views on the stock: its entrenched conservatism, growth opportunities in all divisions and the benefits of its uniquely integrated model. In addition, we believe management is subtly, but importantly, speaking in "investors' language" more than has been its norm. Kier remains our key pick in the sector and we reiterate our Buy rating and 2,110p TP.

Jul 2014
Mechanical and electrical shock

We have cut our price target from 220p to 183p and our recommendation from Neutral to Sell following today’s warning of problems again emanating from the deeply troubled Mechanical & Electrical unit. We do this with a somewhat heavy heart, given the group’s previous record, but our concern is that the losses in the unit might escalate further. Until this uncertainty is allayed, we fear that the growing perception is that the group is selling its ‘crown jewels’ to make up for losses in the relatively small M&E business.

Jul 2014
Industry event feedback

Yesterday, we attended an industry event, the World Congress for Software Quality. The show was well-attended and our visit helped to reinforce our views, both that the testing landscape is changing and evolving, and that SQS commands a strong position within the marketplace. We make no changes to our forecasts or recommendation, but the event adds to our confidence in the SQS proposition.

Jul 2014
Focus on production and cash flow growth

Tullow Oil’s Capital Markets Day provided more granularity to the production outlook and showcased the depth and quality of the management team. Tullow is now a substantial, full-cycle upstream business; however, management maintains that the best strategy is to focus on developing and producing the oil that it has discovered itself. With the stock trading on a cash flow multiple of 7.8x vs. projected five-year average cash flow growth of 15 20%, Tullow now offers substantial long-term value.

Jul 2014
Trading continues to encourage

Kier’s trading statement was encouraging, “on course” for the year to June 2014 and with “good visibility of earnings” for 2015. Margins appear to be in line with our estimates and the outlook continues to improve in most markets. We remain happy with our forecasts. The Capital Markets Day tomorrow should provide further encouragement, we believe.

Jul 2014
Home Sweett home

Sweett Group continues to capitalise on the recovery in the UK construction sector with its strong financial performance in FY2014 reflected in adj. PBT of £5.4m vs. £3.7m in FY2013. The impact of operating leverage is evident in margin rebuild in Europe. Given the improving market environment and management’s focus on capital allocation, we forecast further deleveraging. We roll forward our valuation basis to our unchanged FY2015 estimates which results in a revised TP of 80p (from 90p). Buy.

Jun 2014
Proposed farm-out would increase options

Bowleven’s proposed farm-out of two thirds of its stake in the Etinde permit, offshore Cameroon, is an important potential milestone in realising value from what we believe is a much undervalued asset portfolio. The transaction would strengthen Bowleven’s balance sheet and implies a project valuation above what we believe is discounted by the market. It also provides the wherewithal to advance Bowleven’s appraisal and exploration opportunities, namely upside on Etinde and exploration of the onshore Bomono permit.

Jun 2014
A special start for FY2015

Earlier this month Petra recovered an exceptional 122.5ct blue diamond from its Cullinan mine. With further analysis needed to assess the potential value, the stone will not be sold before the end of FY2014. While we have assumed a best-guess value of US$46m for FY2015, an exact valuation is impossible at this stage. As a result of this find, we have increased our target price to 200p from 175p. However, we have downgraded our recommendation to Neutral from Add to reflect recent share price movement.

Jun 2014
Substantial profit improvement forecast

In a year of investment, Cropper has achieved FY2014 results that are in-line to slightly ahead of our forecasts. As we have flagged previously, the benefits of both the capex programme and the overhaul of the senior management team are likely to come through over the next two to three years. Although we are reducing our FY2015 adj. PBT forecast to £3.8m (from £4.4m) to reflect currency movements, we maintain our FY2016 forecast of £4.9m and increase our target price to 500p (from 450p) and upgrade to Buy from Add.

Jun 2014
Making sense of Big Data

Arria NLG (Arria) has developed enterprise level, core industrial natural language generation (NLG) software. With a global market opportunity, Arria is initially targeting a small number of key sectors. Commercialisation has only just started and significant validation of Arria’s technology and offering is provided by a recent three-year contract with an Oil Major. We believe its licensing focused, highly scalable business model is attractive and initiate coverage with a Buy recommendation and DCF-derived target price of 94p.

Jun 2014
Restructuring looking less taxing?

Kazakhmys recently announced that the Kazakh government has agreed to reduce mineral extraction tax (MET) rates at the mature assets identified for disposal to Vladimir Kim as part of the planned restructuring. While the value of the reduction is relatively small, c.US$40m, the fact that the government is working to assist in the company’s restructuring is an additional positive. Our 350p target price remains unchanged, but we move from Buy to Add on the back of recent share price movement.

Jun 2014
H1 FY2014 preview

Chemring is due to publish its H1 FY 2014 results tomorrow. We forecast that challenging end-markets, FX and a difficult comparator for Sensors & Electronics are likely to result in a weak H1, although we believe this is already priced in. The key issues that we look for are organic order intake, any views on customer demand patterns (especially from the DoD), and the take-up of an offer to loan note holders (which could lift consensus estimates if take-up is high).

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