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Jun 2014
Q3 IMS - US strong, UK

We are not changing our numbers in light of today’s Q3 IMS, which showed continued strength in US demand and Wolseley’s share of the market, offset by the UK, described in the conference call as “a bit disappointing.” However, during the call management did appear to temper some of the more aggressive long term growth expectations and we believe this could start to influence consensus forecasts for 2015 and, in particular, 2016. There could also be some slightly cautious read-across to UK housing-related stocks.

Jun 2014
Stacked with potential

Proton Power Systems (PPS) has leading-edge technology in hydrogen fuel cell and uninterruptible power supply systems. Its innovative solutions address market segments and geographies where PPS expects strong growth. Aided by the acquisition of SPower in February 2013, PPS has built an experienced team and will continue to be funded by the main shareholder (the chief executive) to breakeven, which we forecast will be in 2015. We initiate coverage with a 15p DCF-derived target price and a Buy rating.

Jun 2014
Can they fix it?

After last month’s triple-whammy of profit warning, CEO ‘sacking’ and proposed Parsons Brinckerhoff (PB) sale, some observers might conclude “No, they can’t.” The sale of PB may be just the first stage in a dismantling of what many regard as the UK’s leading construction group. As well as cutting our forecasts, we consider what Balfour might look like post-PB and further options thereafter. While we believe the price is right for now, it may be a brave investor that buys ahead of sustained proof of recovery. We reiterate our Neutral rating.

May 2014
Closer look at the Canadian operations

Our adjusted model reflects the drilling and production results from the first three wells in the Keg River redevelopment project in Alberta, Canada. The pace of development will depend on funding and so we think it would make economic sense for NOP to use debt to accelerate drilling. If all goes to plan, we estimate Canada could be worth 27p/share risked and 41p/share unrisked based on 35 wells and primary recovery, with further upside from secondary. We maintain our 110p/share target price and Buy rating.

May 2014
Priced for successful delivery

We think that Eland is fairly valued based on an assumption of successful delivery against the revised plan for OML40. We increase our target price from 104p to 123p to correctly account for the advantageous economics derived from the Elcrest loan agreement and as we attribute a higher chance of success to the contingent resources on OML40. We see 7% upside and therefore upgrade our recommendation from Sell to Neutral. We prefer companies focused on offshore Nigeria – Afren, Lekoil and Sirius Petroleum, all Buy rated.

May 2014
A well-managed transition

Recent acquisitions are accelerating Alternative Networks’ transition from converged communications provider to managed IT services provider. Evidence that management’s track record of adding value through capital deployment is intact will prompt a re-rating, in our view. The 15% premium to the peer average CY2014E EV/EBITDA multiple implied by our 540p TP is justified by a higher than peer average ROE of 31% and a FCF yield of c.7%. With an expected total return of 23% we upgrade our rating from Add to Buy.

May 2014
Acquires Mediterranean Oil & Gas

With potentially nearer-term appraisal and exploration prospects, MOG adds a new dimension to RKH’s portfolio and diversifies the proposition away from the current focus on the Falkland Islands. The price paid looks reasonable and could presage a wider round of consolidation in the international E&P sector. RKH remains one of our favourite stocks in the E&P universe.

May 2014
Site visit to Argentina

Following our recent site visit to Argentina, this report focuses on some of Andes Energia’s producing assets, highlighting the potential upside from conventional horizons. Performing workovers, drilling new wells, exploring new structures and improving domestic prices can all result in production growth and improved netbacks. The big picture for Andes has not changed; it still offers exposure to the world-class Vaca Muerta shale play and ‘free’ optionality of its assets in Colombia, Paraguay and Brazil.

May 2014
Acquiring near-term production potential

Our field DCF model suggests a risked NAV of c.17p, net to Lekoil, with potential upside and we highlight the completion of the 3D seismic programme and the forthcoming appraisal well on the Ogo field as key catalysts to potential unlocking further upside in the coming months.

May 2014
Sector paying the price as regulation looms

Wednesday’s announcement that Britain’s biggest lender, Lloyds, is to cap loans over £500,000 to 4x household income is, in our view, the most practical sign yet that banks are responding to pressure from the Bank of England and we believe more regulation may well be on the way.

May 2014
Placing brings new strategic shareholder

Following last week’s successful US$100m equity raise. The 157p placing, a premium to the previous night’s close, brings a new strategic shareholder and, in our opinion, highlights the attractions of the investment case and alleviates any concerns on medium-term funding. We like the mid-term optionality offered by both development and exploration upside and look to well results in Kurdistan and news of a Gas Sales Agreement in Algeria as key share price catalysts.

May 2014
New broom

Yesterday’s IMS indicated a mixed trading performance, but was accompanied by further evidence that the pace of change within Centaur has accelerated. We have re-based our forecasts to reflect the forthcoming change to a December year end, the disposal of Perfect Information and the early settlement of the Econsultancy earn out, which we view as positive medium-term developments. Based on our reduced target price of 71p (previously 77p), we maintain our Add recommendation.

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