Petropavlovsk’s solid trading update yesterday suggested that the Russian goldminer was well on its way to hitting its 2017 production targets. Output for the first half was 232,400 ounces, up almost a fifth on the same period last year and more than halfway to the upper end of its full-year guidance. The company realised average gold prices of $1,252 an ounce in the first half, comfortably above its cost of production of $800 to $900 an ounce, and net debt was trimmed by 5 per cent.
So far, so good, but all this positive news was largely overshadowed by the departure on Monday of Pavel Maslovskiy, its chief executive. Mr Maslovskiy had run Petropavlovsk jointly with Peter Hambro for most of the past two decades, until Mr Hambro was ousted as executive chairman by activist shareholders last month. Mr Maslovskiy was not targeted by the rebels — comprising Viktor Vekselberg’s Renova, M&G and Sothic — but he appears to have seen the writing on the wall, anyway.
Mr Hambro had argued that the old team was best-placed to complete Petropavlovsk’s turnaround and to deliver growth, which centres on the development of underground operations at two of its four existing mines and the construction of a pressure oxidation hub, or Pox plant. Will the clearout at the top upset progress? The departure of a long-serving management team is likely to herald a period of uncertainty, but the old team had hardly covered itself in glory, having put the company in need of a turnaround in the first place.
The new management line-up is yet to be decided, but Ian Ashby, the new non-executive chairman nominated by M&G and Sothic, is a respected industry figure. Last night, he said that Sergey Ermolenko, a company veteran, would be acting chief executive while it sought a permanent, external replacement. This should provide some continuity.
Renova’s intentions are unclear, amid reports that it intends to merge some or all of the company with Highland Gold, but it’s worth noting that ISS, the shareholder advisory group, was persuaded to join the rebels to remove the old team.
Tempus tipped Petropavlovsk as a highly speculative “buy” last autumn when the shares were at 6¾p. They are now 7p, but the upside remains.
MY ADVICE Buy
WHY Highly speculative, but underlying performance is good and new management could be just as well-placed to deliver potential upside.
National Grid
National Grid enjoys a reputation as a safe haven stock, in large part thanks to the stable regulatory regime that underpins its business running Britain’s electricity and gas networks.
That regime is set by Ofgem, which last week warned investors that they needed to “prepare for lower returns from 2021”, when the next price settlement comes in. The comments came amid rising political agitation over the high returns networks have been enjoying in recent years. Ofgem seems unlikely to accede to calls to claw back returns, since that would undermine its argument that investors would accept lower returns precisely because the regime is so stable. It is, however, likely to remain under pressure to deliver a regime that is much tougher.
There are also signs that Ofgem could be getting stricter on a key National Grid growth business — developing subsea interconnector cables to the Continent. These get support through a quasi-regulated cap-and-floor regime and this week the regulator trimmed the provisional support levels on offer for its new link to Norway. National Grid’s shares have fallen about 10 per cent since the start of June, primarily because of the rise in bond yields, which makes safe haven stocks look less attractive, though political and regulatory risk are also weighing on sentiment. That is likely to continue as Ofgem and National Grid wrangle over future pricing. That said, the actual implementation is years off and there is little to suggest National Grid’s dividend is at imminent risk.
MY ADVICE Hold
WHY Regulatory risks may weigh on share price
British Land
Ten years ago this month British Land began a £250 million share buyback programme. Within less than two years it was asking investors for more than £700 million in an emergency rights issue. So it is fair to say that when it comes to the historical precedent for the property developer’s £300 million buyback announced yesterday, the omens are not great.
As in 2007, the FTSE 100 property company finds itself apparently flush with cash with few compelling opportunities to put it to work, so why not return some of the dosh to shareholders? At a 34 per cent discount to net asset value, the stock looks cheap, right?
Well, as Jefferies analysts pointed out, British Land rights issues and UK commercial property market corrections can follow one another and some of the City’s savvier short-sellers are betting on a fall in the shares.
Tesco and Sainsbury’s sites make up nearly a tenth of its book, while 3.4 per cent is represented by the new UBS investment bank headquarters. You do not have to be too gloomy about the outlook for the British consumer and the City to see why there might be problems here.
MY ADVICE Sell
WHY Commercial property looks due a market correction
And finally . . .
Could anti-smoking plans burn a hole in Imperial Brands’s profits? The government yesterday published aggressive targets to cut smoking to 12 per cent of the population by 2022. With about 15 per cent of Imperial’s earnings coming from the UK, it is among the most exposed stocks to anti-smoking measures, according to Jefferies. However, the government now appears to have embraced the potential of vaping as an alternative, which could help to fire up sales of Imperial’s Blu brand of e-cigarettes.