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Brokers’ Notes

Westhouse Securities re-iterated its “buy” recommendation for the oil explorer Rockhopper Explorations (RKH) with an increased target price from 617p to 649p. Last week the firm reported the successful flow test of the Sea Lion exploration well which has subsequently been re-entered and flowed for 18 hours. The well achieved substantial flow rates in excess of 2,000 barrels per day (bpd) with a maximum rate of 2,304 bpd; however future testing, with additional equipment and a more optimal well location, is expected to result in a greater flow rate. The broker is very much encouraged by the “good news”, which is says “de-risks” the Sea Lion discovery. Rockhopper shares closed up 53p at 473p.

Seymour Pierce issued a “sell” recommendation with a 230p target price for Mitchells & Butlers (MAB) following the pub and restaurant operator’s acquisition of Ha Ha Bar and Grill last week. The broker remains of the opinion that the firm should be treated as a high risk stock in that volatility at the level of ownership, management, earnings and balance sheet is still present. The recent disposals and acquisitions, although in line with stated group strategy, tend to reinforce this view, especially at the level of earnings volatility, Seymour added. M&B shares finished up 2.2p at 296.6p.

Shore Capital upgraded its recommendation for the pharmaceutical company Dechra (DPH) from “hold” to “buy”. Given the continued slowdown in the veterinary wholesaler market, the decision to diversify into companion animal pharmaceuticals and to expand into the US looks more timely than ever, the broker said. While expansion into the US has been less straightforward than Shore Capital had first hoped, management has taken appropriate remedial steps. Activity in Europe on the other hand has been intense and the VetXX acquisition has proven to be instrumental in providing a solid foundation and driving growth. There is now something of a hiatus in the US product launch schedule until 2012 and so all eyes will remain on the progress of key products Vetoryl and Felimazole. Dechra shares climbed 23p to 474.5p.

Brewin Dolphin issued a “hold” recommendation and 355p target price for Robert Wiseman Dairies (RWD). Last week the milk producer warned “recent intense competitive pressures” will reduce operating profit by about 7 million pounds in the second half of the year to 2nd April 2011. The broker believes Tesco, which accounts for a third of Wiseman’s sales, is mainly to blame for this, as the supermarket giant stepped up its price war battle with Asda on liquid milk. Nevertheless, given the firm’s heavy investment facilities, Brewin sees scope for margin improvements. The shares edged down 1.1p to 338.8p.

Blue-Chips

BAE Systems (BA.), Europe’s biggest defence contractor, is to acquire part of L-1 Identity Solutions in a complicated deal that will result in the US defence group being sold to French rival Safran for 1.6 billion dollars (1 billion pounds). The firm is paying 296 million dollars (189 million pounds) for three L-1 divisions specialising in intelligence services, which will be funded from the group’s existing cash resources.. Commenting on this, chief executive and president Linda Hudson said: “The SpecTal, Advanced Concepts, and McClendon businesses complement the activities of BAE Systems’ existing US-based Intelligence & Security sector capabilities and support the company’s strategy to develop its customer support and services business.” The shares rose 4.6p to 333.8p.

BP (BP.) shares climbed 8.3p to 411.35p after US authorities confirmed that the oil major had permanently sealed the Macondo well in the Gulf of Mexico. “The Macondo 252 well is effectively dead,” retired Coast Guard Admiral Thad Allen, who has overseen the US government’s response, said in a statement. “We can now state, definitively, that the Macondo well poses no continuing threat to the Gulf of Mexico.” President Barack Obama, whose public approval ratings were hurt by public discontent over the US government’s initial response to the spill, welcomed the long-awaited development as an “important milestone.”

WPP’s (WPP) wholly-owned operating company Wunderman, the global relationship marketing network, has agreed to acquire a 51% stake in the Singapore-based digital agency Comwers Pte for an undisclosed sum. Wunderman is ranked the world’s largest digital and interactive network with revenues of almost 900 million dollars (576 million pounds) and the network has been named in independent research as one of seven digital leaders. This investment continues the group’s strategy of developing its network in important markets and sectors and strengthening its capabilities in digital media. WPP shares closed up 17.5p at 729p.

HSBC (HSBA) has entered into an asset purchase agreement to sell the physical assets of its wholesale bank-notes business in Asia to United Overseas Bank for 15 million dollars (9.6 million pounds) in a move to focus on its core strategy. As part of the agreement, HSBC will also license to UOB the technology system used in connection with its Asian wholesale bank-notes business. The transaction is expected to be completed in the fourth quarter of this year. HSBC shares were up 6.9p at 679.6p.

Mid-Caps

Salamander Energy (SMDR), the Asia-focussed independent oil and gas exploration and production company, revealed that the rig to be used on its Bontang PSC asset in Indonesia will arrive in the drilling area in the first week of October. Once on location the rig will be used to drill the Angklung-1 exploration prospect which has been forecasted to contain mean prospective resources of 125 Million Barrels of Oil Equivalent. The shares 2.5p to 247p.

Hochschild Mining (HOC) has dropped its legal action against partner Minera Andes as the miners sign an agreement to restructure both the 65 million dollars (42 million pounds) finance loan and 50 million dollars (32 million pounds) shareholder loan at the heart of the dispute. Under the new terms, both loans will be re-paid over a maximum period of eight years, with a fixed interest rate of 7% per annum. Commenting on this, Ignacio Bustamante, CEO of Hochschild Mining, said: “We are confident that Hochschild and Minera Andes will now be able to focus their full efforts towards building a meaningful and constructive partnership.” Hochschild shares closed up 9.6p at 427.6p.

Small Caps, AIM and PLUS

GMA Resources (GMA) shares rose 0.48p to 2.03p on news that, following recommissioning, the Tirek Carbon in Leach (CIL) Plant at the Amesmessa Mine Site is now operating continuously and, as of 13th September 2010, had processed 3,420 tonnes of high grade ore at a rate of 6.3 tonnes per hour. The addition of the CIL plant will allow the Amesmessa operation to selectively process the highest grade ores in order to maximize gold production.

Haike Chemical (HAIK) shares fell by 23.75p to 19.25p after the petrochemical group swung to a half-year loss despite a 78.7% increase in revenues. For the six months ended 30th June 2010, revenue rose to 467.2 million dollars (299.1 million pounds) compared to the same period a year earlier driven by an increase in demand and adjustments in product mix. However, this rise was not enough to offset the decrease in selling price and rise in cost of sales arising from the high crude oil price and the expansion in the group’s petrochemical business. As a result, the company posted a pre-tax loss of 21 million dollars (13 million pounds) compared to a 11 million dollars (7 million pounds) profit a year earlier. “We believe that the company will incur losses for the whole year,” chairman Xiaohang Yang commented, adding to investors’ miseries.

Clipper Windpower (CWP) shares slipped 13.25p to 31.5p on news the wind-turbine manufacturer is considering ways to raise money and improve a “significant” strain on its cash position. The firm is looking into“numerous alternatives” including private and public equity sales and acquiring lines of credit from United Technologies Corporations, its main shareholder, and other unidentified “financial institutions.” Separately, the company revealed that the loss for the six-months ended 30th June is expected to be in the range of 26 million dollars (17 million pounds) and 30 million dollars (19 million pounds) compared to a loss of 120.2 million dollars (77 million pounds) a year earlier.

Sterling Energy (SEY) shares fell by 50p to 78.5p as the Middle East and Africa focused oil and gas company reported a decrease in the flow of gas from its Sangaw North #1 exploration well in Kurdistan after water started flowing from the well. The flowing water is believed to be formation water. In light of this, the forward plan is to drill ahead through the remaining Cretaceous section to evaluate the Qamchuqa reservoir and then to the deeper reservoirs in the Jurassic.

Europa Oil & Gas (EOG) shares climbed 2.25p to 15.25p as the explorer unveiled a major upgrade to the reserves in place at the West Firsby Field in Lincolnshire. Detailed re-mapping by Merlin Energy Resources and iProdTech has resulted in the P50 remaining reserves figure jumping by 250% to 1.4 million barrels. Commenting on this, managing director Paul Barrett said: “This review…supports the management’s view that the field holds significant unrecovered oil volumes.”

Seeing Machines (SEE) saw full-year losses narrow despite decreased revenues as the developer of advanced vision based industrial systems cut costs. For the full year ended 30th June 2010, the company posted decreased losses from 5.6 million Australian dollars (3.4 million pounds) to 1.8 million Australian dollars (1.1 million pounds) on revenues of 4.5 million Australian dollars (2.7 million pounds), down from 5.2 million Australian dollars (3.1 million pounds) a year earlier. The reduction in revenues was due to a delay in the supply of its DSS system, which is used by drivers of long-haul vehicles and trucks in the mining sector. Commenting on this, the group said, “With further DSS contract wins within the mining sector anticipated the board look forward to the remainder of the current financial year with confidence”. Seeing shares ended the day unchanged at 3p.

Technis International (TECP), an acquisitive business development company now quoted on PLUS Markets, is planning to take a standard listing on the London Stock Exchange. It would be the first PLUS company to make such a move, and would join only a handful of UK companies that have opted for a standard listing since the option was introduced by the LSE in October last year. The company, which joined the PLUS quoted market in September last year with a market capitalisation of 4.8 million pounds after raising 500,000 pounds, is hoping a standard listing will improve its opportunities to raise further funds. Technis shares remained unchanged at 2.03p.