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Jun 2014
A buy-back and new emphases

RR's £1bn buy-back demonstrates its willingness not to hoard capital and an absence of large-scale M&A. Its Investor Briefing saw the announcement of guidance standards that would place it best-in-European-class, a comment that while no material M&A is planned, medium-speed diesels remain an evident focus, and a reiterated focus on cash improvement, all of which are welcome, in our view. However, they do not change the relatively slow growth CAGR that we expect this cycle, thus we retain a Neutral rating.

Jun 2014
Better together

We see Kier as, on balance, the stock best exposed to a gathering recovery in UK construction. Some observers see it as over-diverse, but we believe its component parts gel together into a unique blend of construction, services and property expertise, boosted by last year's acquisition of support services group, May Gurney (MG). It looks fully priced on a 2015E P/E of 14.0x vs. peers on 11.0x, but we believe its highly conservative approach warrants a sector premium. We initiate coverage with a Buy recommendation and target price of 2,110p.

Jun 2014
Revising NAV and target price

We have revised our NAV for Sound Oil (SOU) to reflect progress made with assets in the portfolio and to update our production and cost assumptions on some of the company’s key fields. We retain our Add rating and increase our target price to 14p (from 8.7p). We think that there is some anticipation in the market that SOU will soon announce a farm out on Badile; however, we think a successful appraisal well on Nervesa and news of a Badile farm-out would likely sustain the current, strong, positive share price momentum.

Jun 2014
False Dawn

UK Aerospace & Defence shares have outperformed the market since the start of the current bull market rally in August 2011 (with the past 12 months seeing sustained outperformance by defence and underperformance by aerospace). We regard valuations as being broadly fair for aerospace names, given the cyclical backdrop. But we are concerned that defence stocks have priced in a bottomed-out budgetary environment that we believe is still far away, and as such, we believe that they may be vulner

Jun 2014
Set for another VICtorious year

Trifast has delivered forecast-beating results for FY2014, which included a 75% increase in the total dividend. On sales up 7% to £129.8m Trifast produced adjusted PBT up 26% to £9.2m (WSL £9.0m). On top of further organic revenue growth across the globe being boosted by increased gross and operating margins, Trifast completed its largest acquisition to date with the purchase of VIC at the end of May. We have upgraded our FY2015 and FY2016 forecasts to reflect this and increase our DCF-derived target price from 125p to 185p. Buy.

Jun 2014
Banking on further profit growth

PCFG achieved a further 50% increase in adj. PBT to £1.25m (from £0.82m) in line with our £1.27m forecast. Tight cost controls and lower provisions on a portfolio up 11% resulted in a 50% increase in return on average assets to 1.5%. We forecast the latter to improve to 1.9% in FY2015 and FY2016, although we have reduced our respective adj. PBT forecasts to £1.8m (£2.0m) and £2.3m (£2.5m) to reflect the costs associated with gaining the banking licence by end FY2015. We maintain our NAV-derived 14p TP and Buy rating.

Jun 2014
Stabilisation then profit recovery

Tricorn’s FY2014 results were in line with our revised expectations following reduced demand from some of its major customers. Nevertheless, management made substantial progress during FY2014 with its facilities in China and the US both winning new business. We expect management to now focus on stabilising business across the three divisions in FY2015 and we forecast a substantial recovery in profits in the following two years. Looking ahead to FY2016, we therefore maintain our 35p target price and Buy rating.

Jun 2014
Making progress

Since the JV with Alrosa was initiated in August 2013, Botswana Diamonds (BOD) has seen a significant uplift in the progress of its exploration programme across its licences. We expect this to generate substantial news flow over the next couple of quarters, as some of the more prospective targets are tested. While there is no guarantee of success in diamond exploration, we believe the company is exploring all available options. We maintain our Buy recommendation and 7p target price.

Jun 2014
Safety in numbers

The roll-out of Safestay’s contemporary hostel model has started rapidly with the acquisition of a 160-bed hostel following its admission to AIM in May 2014 which raised £7.6m. The group has a profitable and cash-generative business model that achieved revenues and EBITDA of £1.9m and £539k, respectively, in FY2013. Capitalising on expansion of the hostel market beyond the youth demographic, Safestay offers investors exposure to both income and growth and is NAV-backed. We initiate with a Buy rating and a 78p target price.

Jun 2014
IMS in-line, but Halifax highlights rates fears

We are maintaining our estimates after an in-line IMS for the four months to end-May and note that Bellway is continuing the upbeat tone among housebuilders, despite worries in the wider housing market over lending limits and potential regulatory constraints. We believe today’s Halifax House Price Index edging closer to the “danger zone” of 5x incomes may raise fears of an impending rates rise, which could more than offset Bellway’s sanguine tone in terms of share price sentiment in the sector.

Jun 2014
Aah Bristow, a strong stock

We initiate coverage of FTSE 100-listed African gold miner, Randgold Resources with an Add recommendation and target price of 5,000p. The company has achieved impressive production growth since opening its first mine in 2000, especially over the past three years. Randgold’s growth profile, strong management and progressive dividend are likely to appeal to investors and, in our opinion, outweigh the operational and country risks associated with the company.

Jun 2014
A discounted market leader

Japan is a complex, fast-moving market that often frustrates investors: 2013’s strong market gains have been partly clawed back in 2014 and while real GDP growth surged to a multi-year high in Q1 2014, Q2 is likely to provide a consumer hangover following the April sales tax hike. Prospect Japan Fund’s weaker correlation to economic and market-driven events means that the focus is on stock-specific drivers. We believe the fund is likely to attract both Japanese fund investors and generalists and we initiate coverage with a Buy.

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