As one analyst put it, it would have been interesting to have been in the Pimlico offices of Premier Oil this week when news of the huge discovery at the Zama field off Mexico came in. This is a genuine game-changer, with 500 million barrels of oil recoverable in waters relatively easy to operate in and close to the necessary terminals and other infrastructure.
This makes scrabbling around in the North Sea for small discoveries seem less compelling, even if Premier is still drilling there. The company chose to put the news from Zama out a day before yesterday’s expected trading update and the shares rose 36 per cent — it has 25 per cent of the field and its Houston-based partner, Talos Energy, put out its own announcement at the same time.
Zama should break even with oil at $25 a barrel by the time it starts to produce in 2022 or thereafter. It takes a little pressure off Premier to go ahead with the Sea Lion field north of the Falklands, which in valuation terms is probably not that relevant even if the company is still talking about a firm decision on going ahead with this next year.
The financial restructuring of its debt is now over but there has been little progress in reducing this so far and it still stands at $2.7 billion. With oil at $50 a barrel, that will not move much this year. Once the huge Catcher North Sea field comes on stream in December that will change because the field should produce cash flow of $300 million to $400 million a year.
Meanwhile there is no more bad news from the accident-prone Solan field and Premier will be out of the Pakistan operation by the year end after a buyer was finally found in March. An exit from Mauritania would leave it focused on those productive assets in the Far East, the North Sea where the fields bought from Eon at the start of last year are performing ahead of expectations, the promise of Mexico and, potentially, Brazil and the Falklands.
The shares, off ¼p at 62¼p, were tipped by this column at the start of the year at 74p, shot ahead but have since been undermined by the fall in the oil price. The long-term story is there but given the slow pace of debt reduction the shares, after recent gains, may not have much further to run.
My advice Hold
Why While Zama is an unlooked-for boost, the low oil price will continue to hold back the pace of debt reduction until next year
Capital & Regional
Its shares may have been falling over the past couple of months on the high street’s general uncertainty but there is not a lot in Capital & Regional’s trading update that reflects this. The company owns seven shopping centres, mainly in the southeast, having sold one last year and then bought one in Ilford, northeast London, in March. Its strategy is buy and improve, and there is £70 million or so tucked away for capital spending, with development in train in Ilford and at its schemes in Walthamstow, at a cost of £20 million, and Hemel Hempstead, Hertfordshire.
Past experience is that this has been highly successful in building value. The half-yearly update shows no cause for concern. Passing rentals are up 1.7 per cent on a like-for-like basis since December, with more rent coming in from recent lettings to the likes of Lidl and Travelodge. Occupancy remains at a comfortable 95.5 per cent, and new lettings and renewals are coming in at 8 per cent more than estimated rental value.
One of Capital & Regional’s strengths is that the retailers it houses tend towards the non-discretionary and value end of the retail spectrum. Footfall, then, was down 0.9 per cent, a third of the decline nationally, while retailers’ sales were up, with a spike in June probably because of the weather.
For investors, this is one of those specialist property Reits that provide a good reliable income, assuming those promising retail trends continue. The shares, up ¼p at 55¼p, now offer a forward yield of 6.6 per cent, as good as it gets.
My advice Buy
Why Dividend yield is high and looks assured
Renewi
Renewi is the awful name that the former Shanks waste management group has been saddled with after the takeover of the Dutch Van Gansewinkel business in February.
Shanks was operating in the Netherlands so it had a good idea of what it was buying but it took a while to get the private equity vendors to the table at a reasonable price.
Much of the product from waste treatment plants there goes to the construction industry and prices had been held back but are recovering well as the Benelux economies strengthen. Shanks’s problem was the business serving UK municipal authorities, which, despite corrective measures, is several years away from being sorted out.
Renewi has produced a favourable first-quarter trading update with cost synergies of €7 million from the merger running ahead of expectations. This year, though, will be one of transition, given the work to rationalise the group that needs to be done, with the full benefits only coming through in 2018-2019. The uplift then will be quite startling while the shares, up 3¼p on 85p, sell on 13 times that year’s earnings. It looks a bit too early to buy, though.
My advice Avoid
Why Merger benefits may take a while to come through
And finally...
ITE Group has suffered in the past because of its historical involvement in Russia and, more recently, Turkey. However, the exhibitions operator appears to have turned the corner and the shares were up 8 per cent on a favourable third-quarter trading update. Its events are 100 per cent booked for the current year, while Moscow has performed well again even if Turkey remains weak. So revenues were up by 9 per cent over the quarter while strong cash flow has allowed debt to fall by more than expected to £54 million.
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