The story of Genel over the past year or more has demonstrated just the sort of risks attached to oil and gas explorers that do not recommend them to widows and orphans.
The oil is in Kurdish Iraq and it is relatively cheap to produce, giving some protection even at the present price. The problem has been getting paid for it. In November, after the Kurdish government reached a deal with Baghdad that would allow it to be paid for oil exported from there from Genel’s Miran and Bina Bawi fields, the company made a confident statement that it had a “firm commitment” to be paid by the Kurds.
One small payment was made, but then Baghdad backed out of the deal, the Kurds didn’t get paid what they were promised and Genel didn’t get paid at all.
Add to this the collapsing oil price and then factor in the lack of success Genel has had in finding reserves anywhere else, with failures in Malta, Angola and Morocco that required a large write-off. Capital spending has been scaled back, with similar exploration in Ethiopia, Somalia and Ivory Coast at a standstill.
Production from Kurdish Iraq was up 41 per cent year-on-year in the first half, but still the company is not being paid. There is now genuine hope that the situation has improved to the extent that back-payments of the $230 million it is owed may trickle through, along with monthly ones for the stuff now being produced.
The Kurds have opted to go it alone and build their own pipeline into Turkey, which can take 700,000 barrels a day and then be upgraded. They are producing more than 600,000 barrels a day, including Genel’s share, getting in about $900 million a month and promising to pay contractors out of this.
There seems no reason why they should not and Genel has potential revenues of up to $400 million a year, at the present oil price. Compare this with the market capitalisation of less than £1.2 billion and the shares, off 17¾p at 458¼p, begin to look startlingly cheap.
Investors should be aware that while the risk has been substantially lessened, it has not gone away and in such parts of the world probably never will. For optimists, though, this looks like a good time to buy.
$350-£400m Potential annual revenues for Genel
700,000 bopd pipeline capacity
MY ADVICE Buy
WHY A purchase today would be highly speculative, but the chances of money arriving from Kurdish Iraq are now much better than they were
The recruiters, as cyclical businesses, should be doing better in this economic climate, excepting the eurozone. Hays produced a 9 per cent rise in fees last week; the smaller, more specialist SThree raised them by 10 per cent in the half-year to the end of May, despite some drag from currencies.
SThree, which has its roots in the IT sector, is building up its contract business here and in areas such as life sciences because the returns from placing such staff are much higher than for, say, accountants. Contract gross profits grew by 20 per cent, with a stellar performance from the Americas, where total profits across the group were 34 per cent up.
There is always a catch. Energy makes up 12 per cent of the business and clearly things are not great in the United States and Asia. That rebalancing, and the closure of less profitable operations in Russia and India, helped to improve margins from 8.3 per cent to 12.8 per cent, aided by the other key metric, profitability per consultant, ahead by 9 per cent.
The shares, up 27p at 397¾p, have come from below £3 at the start of the year. The long-term prospects are excellent, but on 21 times’ earnings they look up with events.
Revenue £404m
Dividend 4.7p
MY ADVICE Avoid for now
WHY Earnings multiple is starting to look toppy
Alent looks like another of those high-tech British companies where American investors can see more value than their counterparts in London. The shares of this provider of speciality chemicals to screens and the like have been dull performers since they were spun out of the old Cookson Group along with Vesuvius, as supposely the more exciting of the two.
Anite, another provider to the telecoms industry, received its own US bid last month. AZ Electronics, in a similar line of business, was bought by Merck last year. All three have one thing in common: a chequered history, with the odd stumble. The premium that Platform Specialty Products is prepared to pay for Alent is significantly higher than in those other two deals, representing, at the 503p offer price, almost 19 times’ earnings.
Platform, through its MacDermid business, is a competitor of Alent and can justify the price through the $50 million of cost savings that management expects. Yet there is a complication: the Alent board insisted on cash, rightly, but Cevian Capital, the biggest shareholder with almost 22 per cent, wants to remain for any upside, a clear indication of confidence in the business.
Shares in Platform equivalent to this are being issued on the assumption that other UK investors will not want a holding in a Nasdaq-quoted company — rightly, in my view. The deal will not close until the end of the year, at the earliest. With the shares up 149¼p at 487p, investors always have the option of taking profits in the market.
£1,351m cost of Platform deal
MY ADVICE Take profits
WHY Takeover is generous but could take months to arrive
And finally
And still they come. Bluefield European Solar Fund is the latest dedicated green energy vehicle to float in London. This is the twin of Bluefield Solar Income Fund, which floated in 2013 to invest in the UK. European will, as the name suggests, buy solar farms in the eurozone, predominately in Spain and Italy. The attraction of such vehicles to retail investors is, as ever, the income they pay. The fund is targeting a rate of return of 7 per cent to 9 per cent. This should allow it to offer, for the first couple of years, a yield of 6 per cent.
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