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Broker Round-up Part 2, including Alliance Pharma, Gemfields, DiamondCorp, Mariana Resources, Petrel Resources

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It is a game of two halves for investors playing with supermarket stocks, according to BarclaysCapital.

While Morrisons (LON:MRW) has gone cold, the broker believes Sainsbury’s (LON:SBRY) is still a fresh stock.

Analyst James Anstead notes that Sainsbury’s sales growth is now outpacing Morrisons’.

Although this does not come as a shock, the outperformance has grown to unprecedented levels, he added.

“We struggle to understand why Morrison’s sales trends will improve any time soon – the latest promotional tool does not seem to be working and more intensive advertising from Tesco ahead of Christmas may worsen things,” said the analyst.

He downgrades Morrisons  to ‘underweight’ from ‘equal weight’ with a lower price tag of 250 pence, down from 300 pence, but sticks to his ‘overweight’ rating on Sainsbury’s with a target price of 395 pence, up 55 pence today.

Despite watering down its second quarter volumes, Citigroup recommends topping up shares in beer maker SABMiller (LON:SAB).

The broker kept its ‘buy’ recommendation for the Miller and Grolsch brewer and raised its target price t0 3,000 pence from 2,750 pence today.

“While there are certainly macro headwinds, we think SAB's underlying strengths mean it will continue to post low teens EPS [earnings per share] growth, so we think it will continue to perform strongly,” said analyst Adam Spielman.

JPMorgan Cazenove reckons the banks are yet to bear the brunt of a shift in UK regulatory stance.

Analyst Raul Sinha says the market is yet to fully incorporate the implications of the recent shift in the regulatory approach where there is now a framework to force issuance if capital generation falls short of management expectations.

He worries that PPI, Libor, restructuring costs and other ongoing one-offs could prove to be unexpected headwinds to capital.

With Lloyds (LON:LLOY) trading at a price to earnings ratio of 8.5x in 2014, he sees limited upside and cuts the bank to ‘underweight’ from ‘neutral’.

Sinha added that Lloyds could struggle as it may be the most exposed to the PPI saga, the costs for which he believes could be significantly higher than the market predicts.

As for rival bank Barclays (LON:BARC), Nomura sees a period of negative catalysts ahead.

It believes the extra £700 mln set aside to cover PPI claims taking the total to £2 bln, could be the first in a series of negative surprises for the bank.

Broker Numis upgraded Alliance Pharma (LON:APH) from ‘add’ to ‘buy’ today, with a target price of 37 pence, up from 32 pence, on the news it has snapped up stoma care product specialist Opus Group for about £9.5 mln.

Analyst Charles Weston forecasts revenue growth of 5% per annum for Opus.

He also believes the business will require £300,000 in additional management investment, £400,000 in related support costs and £500,000 in additional interest costs on the revolving cash facility.

Weston also forecasts a 9% uplift to earnings per share in 2013, while he adds that this will increase as debt is repaid.

JPMorgan upped its target price for Gemfields (LON:GEM) from 50 pence to 58 pence and sticks to its ‘buy’ recommendation after its in-line final year figures.

The broker lowers its 2013 earnings per share estimates to take account of higher depreciation and a fewer auctions, but keeps its 2014 estimates unchanged, which it says represents “strong growth”.

DiamondCorp (LON:DCP) today revealed further plans to help fund the development of the Lace mine in South Africa.

It is raising £1 million gross from a share placing, issuing 28.5 million new shares at 3p each, and it is also setting up a £10 million equity line facility with specialist financier Darwin Strategic.

Numis said it thought it was a complicated but "clever" way to draw funding from many sources in difficult market conditions.

Northland, meanwhile, restated its buy advice on the stock, though it pegged back its valuation to 11 pence a share from 15 pence (current price 3.95 pence).

“We highlighted at its interims that DiamondCorp’s low cash position was a concern and that we expected some sort of fundraise shortly,” said analyst Dr Ryan Long.

“It is positive to see that the company has raised funds that can enable it to continue the development of the Lace Mine, though the placing at 3.5 pence was completed at a slight discount to the current share price of 4 pence.”

RFC Ambrian highlights Mariana Resources’ (LON:MARL, TSE:MRY) “significant in-country experience” in Peru.

The endorsement comes as Mariana revealed it will go ahead with its earn-in option for the Condor del Oro project in Northern Peru after due diligence was completed satisfactorily. 

The Latin America-focused explorer has been granted options to earn up to 51% of two properties – Pucayacu, which is prospective for gold and copper and the Yuracyacu, where copper and silver are being targeted.

RFC Ambrian, which retains its ‘speculative buy’ rating, said the project has the potential to host a multi-million ounce gold and base metal deposit.

Northland Capital believes the recent progress with the Irish Atlantic Margin heralds something of a new beginning forPetrel Resources (LON:PET).

The company recently identified several new targets in the eastern part of the Porcupine Basin offshore Ireland.

The broker, which has a ‘buy’ rating, believes with good cash backing of around €3.4 mln and the prospectivity of Porcupine confirmed, Petrel offers investors “significant, if speculative upside from the current low rating”.


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