Broker tips: Salamander, Keller Group, Majestic Wine

The possible bid from a consortium of investors led by Spain´s CEPSA for oil explorer Salamander would be successful were it to take the form that has been mooted, broker Canaccord Genuity said in a research note e-mailed to clients.

On Friday 14 November Salamander said it had received a 121p per share offer from said group of investors, plus a contingent award of up to 24p per share in cash dependent on the firm´s upcoming exploration drilling programme at the G4/50 blocks.

The exploration area surrounds the company´s main producing asset, known as Bualuang.

The announcement, however, was made without the consent of CEPSA, which on the morning of 17 November said it was still considering the terms of any such bid.

The transcation, as per the terms outlined by Salamander, “looks good” the analysts said.

On the assumption of a long-term price of oil at $88 per barrel and at a 10% discount rate the base price which is being discussed would be in-line with their own central estimate for net asset value (NAV) on a discovered resource basis, analysts Thomas Martin and Charlie Sharp pointed out.

Neither was Ophir Energy, which had also been looking at Salamander, expected to make a compelling alternative offer.

As well, the contingent award meant that investors would retain some upside exposure in case of exploration success.

Following on from all of the above, Canaccord lowered its price target on the stock to 120p per share, from 140p, and given the recent movement in the share price lowered its recommendation to 'hold' from 'buy'.

Investec said it remained "confident" in its outlook for ground engineering specialist Keller after it reported trading in line with expectations.

Both revenue and profit for the period between the start of July and 16 November came in ahead of the previous year, with steady growth in US construction helping to offset challenges in Europe and Australia.

While revenue and profits in all its US businesses were ahead of last year and the outlook for the UK and Poland improved, challenges remained in all other regions.

"The improving US construction market continues to contribute to a strong performance, albeit Canada has seen no improvement in the resources market," said the broker.

"European markets remain difficult, but don’t seem to be worsening. The early signs of improvement in the commercial and infrastructure sectors in Australia have dissipated recently, whilst Asia remains busy."

Investec added that Australia looks like it will "endure a difficult first half", but noted there continued to be a number of live prospects in the second half and into 2015. Trading in Asia is expected to be solid.

The broker reiterated its 'buy' rating for the group after noting that the group has a number of "exciting and large projects" at various stages of the bidding process, which it continues to believe will help drive a "significant margin improvement from current levels".

Broker Investec is advising investors to fill up on shares in Majestic Wine despite news of a fall in half-year profits.

Majestic said on Monday that pre-tax profits in the 26 weeks to 29 September fell to £8.5m against £9.5m in the first half a year ago due to investment in a bigger distribution centre and tough trading in its Lay & Wheeler business.

Investec said it was cutting its target price to 410p from 460p, but it upgraded the retailer to 'buy' from 'add' following what it described as "material share price under-performance".

The broker said Majestic's valuation was undemanding.

"With full-year 2015 being a year of investment, we expect growth to resume in full year 2016," Investec analyst Kate Calvert said.

Shares fell 3.25p or 0.9% to 362.75p at 12:39 in London.