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Sirius Minerals in top 10 AIM share tips for 2017
By Lee Wild | Tue, 10th January 2017 - 12:29
WH Ireland's selections span a variety of sectors and all have "potential to shine in share price terms over the coming twelve months".
It's worth noting that the broker did the same thing last year, generating a return of 16.8% between 1 January and 30 December 2016. Star tip, Spain-focused uranium explorer Berkeley Energia (BKY), more than doubled in value.
"Whilst equity markets may not be as generous in 2017, we continue to believe the smaller company universe will offer their usual helpings of excitement in the year ahead," writes WHI.
Analyst Paul Smith, joint house broker at Sirius Minerals (SXX), is tipping shares in the future potash miner to triple after a difficult few months.
In what was a pivotal year, Sirius completed its feasibility study, successfully undertook an ambitious first phase of funding and received its final permit. First-class contractors move their diggers into North Yorkshire this year to begin work on the potash project and Britain's largest mine.
It will take five years to build, but the mine should be capable of generating £1 billion of cash profit every year.
"The current share price in no way reflects the value in the company going forward - currently slightly below the placing price [20p] at which large institutions and hedge funds invested," says Smith, who points out that the current market capitalisation reflects only cash held by the company, with "little or no value placed on the project itself".
"We anticipate a recovery in the share price as Sirius begins construction and the mine becomes a reality. We maintain our 'buy' recommendation and 60p price target."
Analyst John Cummins likes CareTech (CTH). The social care services firm made "considerable progress" in 2016, with two big acquisitions, strengthening the management team, and growing profits.
"Whilst the shares have performed well, recent sector transactions illustrate the fact that the valuation multiples currently ascribed remain undemanding," argues Cummins.
"We believe that the group remains well positioned to continue its strategy in targeting double-digit growth, backed by the £300 million-plus freehold property valuation and near-3% dividend yield, positioning CareTech well for the year ahead."
"Underpinned by the recent transactions in the sector, we raise our share price target to 435p, which would equate to a FY 2017e enterprise value/earnings before interest, tax, depreciation and amortisation (EV/EBITDA) multiple of 11x."
Berkeley Energia makes the list again. Ongoing momentum at its Salamanca project will see construction progress further, with orders for first pieces of major equipment in.
"This is the stand-out uranium project development globally, benefitting from low capital and operating costs and all of the opportunities of being located in a stable democracy in a region of high uranium demand and low domestic production," explains Smith.
"2017 should be a year of positive news flow for the project, against a back-drop of improving sentiment in the uranium market, and we maintain our 'buy' recommendation and 128p price target."
Project manager and consultancy WYG (WYG) finished 2016 in style with strong half-year results. Despite this, the shares still trade on a 30% discount to peers. Deals in the sector continue to be done at 8-12x EV/EBITDA. WYG trades on just 6.8 for 2018.
Watch for further revenue growth and higher margins, contract wins and cash generation, says analyst Nick Spoliar who thinks the shares are worth 172.5p, 26% more than the current price.
Caledonia Mining (CMCL) has already had a cracking 2017. Its shares are up as much as 50% to 120p, but Smith pencils in a target price of 146p as this year "sets the scene for the high impact of the new developments from 2018 onwards".
The company should complete central shaft development at its Blanket gold mine in Zimbabwe early next year, increasing gold production further. Output is tipped to increase by 205 in 2017 to 60,000 ounces and the firm should increase its cash pile, despite further heavy investment.
UK Oil & Gas
In 2016, UK Oil & Gas (UKOG) effectively "unlocked an entirely new UK onshore petroleum play, which is, in our opinion, the most significant development for decades for the UK onshore oil & gas sector," according to WH Ireland's Brendan Long.
WHI keeps its recommendation and target price 'under review' pending a comprehensive assessment of UKOG's assets ahead of a change in analyst coverage.
However, the outlook in 2017 is "catalyst rich". Long expects UKOG to advance the appraisal of its Horse Hill discovery, drill the Broadford Bridge exploration prospect, "a Horse Hill look-alike", and drill a conventional target, Holmwood, that is also prospective for fractured Kimmeridge Limestone.
Jarvis Securities (JIM) remains a 'buy', and Spoliar nudges up his price target by 25p to 450p. He thinks 2017 holds a range of positive potential catalysts for the stockbroker, driven by strong trading volumes, potential client administration wins, and a possible increase in interest rates.
"Given the backdrop of positive trading, we expect share price progress to continue as we move towards the full-year results on 16 February," says Spoliar.
Computer based training firm Pennant International (PEN) has had a great run already, but demand for the complex, high-specification products it supplies continues to grow.
Having only partially recovered from a significant derating in 2015, Spoliar thinks a price/earnings (PE) ratio of just 11 times, a big discount to peers and 20% less than Cohort (CHRT), is unfair.
"The company is ambitious to grow and while mergers and acquisitions remains a possibility, the more-than-50% expansion in facilities further enables the organic opportunity," says Spoliar, who tips the shares up to 100p from 78.5p currently.
This could be a game-changing year for Redhall (RHL). Hot on the heels of strong full-year results in December, the engineer could be a big beneficiary of the Government's decision to progress with the Hinkley Point C nuclear power plant.
"We rate the shares with a 'buy' recommendation and 12.5p share price target [10p currently], which has scope to move higher should the group secure major nuclear new build contracts," says Cummins.
Finally, WH Ireland analyst Eric Burns has a speculative 'buy' for us.
LightwaveRF (LWRF), which makes a range of intelligent dimmers, radiator valves, sockets and sensors, strengthened its balance sheet with a £2 million fundraise last year.
"This gives it the resource for a concerted marketing push for its extensive range of products encompassing heating, cooling, lighting, ECO and power in a fast expanding market," says Burns, who believes a strategic tie-up with larger partners could be transformational.
"Whilst forecasting Lightwave has been difficult in the past and we have no estimates for the current year as yet, there is material speculative upside in the share price."
|Summary of stocks mentioned|
|EPIC code||Company Name||Market Cap||Price||Recommendation|
|SXX||Sirius Minerals PLC||£780.8m||18.8p||Buy|
|CTH||CareTech Holdings PLC||£215.4m||336.0p||Buy|
|BKY||Berkeley Energia Limited||£155.5m||59.3p||Buy|
|CMCL||Caledonia Mining Corporation Plc||£59.6m||109.0p||Buy|
|UKOG||UK Oil & Gas Investments PLC||£40.3m||1.6p||U/R|
|JIM||Jarvis Securities PLC||£38.7m||352.5p||Buy|
|PEN||Pennant International Group PLC||£27.0m||78.5p||Buy|
|RHL||Redhall Group PLC||£20.3m||10.1p||Buy|
|LWRF||LightwaveRF PLC||£6.4m||16.5p||Speculative Buy|
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.