For nervous investors looking to dive back into oil, there may be worse places to look than Cairn Energy. The explorer has no production at the moment. It is the silver lining of not having any revenue: your income cannot take a battering from the price of oil.
It is not far off, however. It is the junior partner in the Kraken and Catcher fields in the North Sea (operated by EnQuest and Premier), where production is set to start in 2017. Cairn is fully funded through to when the oil and the cash start flowing, having sold a 10 per cent stake in the Catcher licence last September.
Simon Thomson, the Cairn boss, argues that despite the more pessimistic soundings emerging from the North Sea — it is the world’s highest-cost region and its workforce is headed for industrial action — there is plenty of life there, as evidenced by the farming out of its 10 per cent stake in Catcher, which leaves it with 20 per cent. For Cairn the real excitement lies a few thousand miles from the North Sea. Offshore of Senegal, the company had one of the few exploration successes in the industry in what was a bleak year for drillers. This year it is drilling three appraisal wells to determine exactly what it has on its hands. Cairn has some first-mover advantage: the wells it bored last year were the first in Senegal’s waters in a couple of decades, and the tax terms are accordingly generous. Mr Thomson believes that the project could still make sense with oil prices of less than $40 a barrel.
The most thrilling prospect for potential investors is the lack of excitement in the rest of the market. The City is not in a frame of mind to pin huge valuations on exploration portfolios. At some point — probably not in the next six months — it will be rewarded with exploration success. For patient investors there is a window of opportunity.
The other factor to watch is Cairn’s wrangle with the Indian tax authorities. Cairn holds a 10 per cent stake in Cairn India, which was handed a $1.6 billion tax bill in March. Cairn is trying to sell its stake, worth $526 million on June 30, but has been prevented from doing so. Cairn investors should not expect to get their hands on that cash soon, but even in its absence there is a strong case for the shares.
Loss £235 million
Cash £725 million
MY ADVICE Buy
WHY Growth prospects in Senegal and imminent North Sea cashflow make Cairn a good place to wait for normality to return to oil
Miners haven’t been so cheap in years. Is it finally time to look again at the diggers? Glencore will today become the latest heavyweight to reveal its scorecard. With a big writedown of its oil-producing business in Chad last week, it may have already got some of the bad news out of the way. But yesterday’s copper price fall will not present the ideal backdrop for Ivan Glasenberg, a long-term copper bull, to present the interim results.
Copper dipped below $5,000 a tonne yesterday, with traders uttering the words “psychologically important”. In the long term, the proportion of the world’s copper production that costs more than $5,000 a tonne to produce will be a more important factor than mere vagaries of human psychology. The data suggests a big chunk of the world’s copper mines are already underwater. Even at $5,100 a tonne, analysts at Macquarie reckoned that 17 per cent of global production was loss-making, far higher than earlier estimates.
The unknown in the equation is whether China will devalue the yuan again, which would make the stuff dug out of the ground more expensive to Chinese buyers. That is reason enough to avoid for now.
Copper price -14%
Likely profit $1.8bn
MY ADVICE Avoid
WHY Uncertainty over China makes it too risky for
Few industries have tripped up as spectacularly as pawnbrokers and payday lenders. Seeing the onset of the credit crunch and rocketing gold prices as their big moments, they bounded on to high streets and into shopping centres, only to fall flat on their faces, illiciting no little schadenfreude.
The culprits were the pronounced slump in the gold price since 2011 and regulation. Are things now looking up? H&T, the quoted pawnbroker, is benefiting from the collapse of its closest rival, Albemarle & Bond. The less regulated payday lenders are also in full retreat, as is Wonga.
Profits were up by 30 per cent, even if the pledge book — the value of its loan book — is down slightly. H&T reckons that the two biggest payday lenders will have halved their store counts by the end of this year. About 80 per cent of H&T’s loans, both traditional pawn loans and unsecured credit, fall under the Financial Conduct Authority’s definition of high cost short-term credit, but the company insists its rates are well below the maximum threshold and that the extra burden rests mainly in the additional “housekeeping” to prove compliance.
As gold has lost its lustre, it is broadening the range of goods it will accept as loan collateral to items such as artworks and cars. This looks wise. It is also luring new customers into its stores by offering competitive rates on foreign exchange transactions.
The company appears to have turned a corner and the shares, up 20 per cent in the past year, are following. At 13 times this year’s earnings and a dividend yield of 3.7 per cent, H&T is worth a look.
Pledge book -3%
Profit up 30%
MY ADVICE Buy
WHY It stands to benefit from a market clear-out
And finally...
So Andy Clarke reckons Asda has reached its nadir. History will be the judge — but does Mr Clarke have a point? I’m not sure. The problems afflicting the quoted supermarkets are not short-term, tactical issues. They have too much space, sell too much non-food and are being assailed by the discounters. Asda is in a trickier position than quoted rivals Tesco, Sainsbury’s and Morrisons. At a push, I’d plump for Sainsbury’s by virtue of its smaller non-food presence. But it would take a brave punter to venture back into the aisles at this stage.
