Broker tips: Petra Diamonds, Hurricane Energy

Berenberg upgraded its stance on Petra Diamonds stock to 'hold' from 'sell' on Monday, lifting the price target to 9p from 8p following weakness in the shares over the summer.

The bank, which still reckons that debt will consume much of the medium-term equity value unless rough diamond prices improve materially, said the full-year results were in line with its expectations, with the $246m impairment being the main outlier.

"While the impairment was disappointing, we think that the more cautious market backdrop that management is communicating was the driver of the weaker share performance on the day, with reports of a 4% softening in the market since the June quarter," it said.

"The rough diamond market does tend to give up some gains in the summer months, but this follows an unseasonal 5% drop in H1; not aiding sentiment as we move into year-end are continued trade tensions and protests in Hong Kong."

Berenberg said it has marked its model to market for a 4% price drop and forecasts flat prices for the next 18 months.

While it is more optimistic about the medium-term prospects of the diamond space, risk and sentiment remain skewed to the downside, it said.

Analysts at Canaccord Genuity raised Hurricane Energy to 'buy' from 'speculative buy' on Monday, highlighting some "fresh operational information" on its Lancaster early production system project in the group's interim results.

Canaccord, which kept it 95p target price for Hurricane unchanged, said that while it was still "early days", reservoir oil deliverability remained "strong" at Lancaster and noted that the facilities appeared to be bedding in successfully.

With early issues having been resolved, the Canadian broker interpreted the latest key information from Hurricane on water production as being "reassuring".

"The Lancaster EPS has been onstream for only three months or so, and unsurprisingly it has not all been straightforward operationally," said Canaccord.

"Yet underlying that, the company's confidence in the Lancaster EPS is strengthening and we think that is increasingly justified in terms of both the subsurface and facilities."

Canaccord noted that there was still "plenty of data to be gathered to embed the sense of reducing risk", with another update expected before the end of the year and a capital markets day in the first quarter of 2020.

The analysts also argued that Hurricane's current market capitalisation discounted little more than a risked view of the planned expansion at Lancaster and largely ignored the undeveloped resource potential.