Broker tips: Gemfields, Dignity, Ibstock

Analysts at Macquarie sounded a positive note on Gemfields's stock despite what it said was the short-term issue of lower grade production.

On 12 May, the precious gems miner lowered its 2017 production guidance from between 30.0m to 35.0m carats to a range of 20.0m to 25.0m, due to lower than expected mining grades at its Kagem and Montepuez operations.

However, at both mines, and especially so at Montepuez, the outfit had "significant" scope to shift production from lower to higher grade zones, the broker said.

"So total output in carats is not so much a concern to us relative to carat quality and consistent product mix."

As for the decision to withdraw from purchasing the Coscuez emerald mine in Colombia, while a minor loss it would allow Gemfields to refocus on other highly prospective exploration assets in Ethiopia and elsewhere.

The company's significant inventory of rough and polished stones, in excess of $100.0m, also meant it had a strong financial cushion, which in turn reassured Macquarie about its ability to refinance if necessary.

"Gemfields remains a highly differentiated, global leader in the gemstones industry. Over 2017, operational setbacks have hampered the shares but we remain confident in the three-year growth plan to nearly double production of rubies and emeralds. The shares remain attractively priced at ~0.5x NAV, and we maintain an Outperform rating."

Investec upgraded funeral provider Dignity to 'buy' from 'hold' following the company's first-quarter update, in which it reported a 15% jump in revenue as deaths rose 7%.

The brokerage said Dignity has made a "strong" start to the year. "Whilst Q1 16 presents a weak comparator, a situation which we expect to unwind over the year, the results are more impressive when viewed relative to Q1 15 (the strongest quarter in ten years)," it said.

It added that with acquisition activity remaining high, strong growth in pre-arranged funerals and robust average prices, Dignity is well placed to meet expectations.

Investec said that with the death rate assumed to revert to a more normal level over the course of full-year 2017, it expects 2% revenue growth on a 2% decline in deaths with an EBIT margin of 33%.

Consensus is too conservative on Ibstock, analysts at Barclays said, reiterating their 'overweight' recommendation on the shares with an improved target price of 285.0p.

To make their case, analysts Pierre Rousseau and Nabil Ahmed pointed to strong new build activity and a better than initially expected price/cost differential in Britain.

"Beyond the superior industry features (tight supply-demand balance, industry discipline and unprecedented public support), Ibstock has very promising development projects which should all address attractive market opportunities and enhance profitability," they added.

On the basis of the above, they raised their 2017 to 2019 estimates for the company's earnings before interest, taxes, depreciation and amortisation.