Ophir Energy
At some stage someone will make an awful lot of money calling the bottom of the oil market. It may be imminent. Last week Dragon Oil, which operates in Turkmenistan, attracted what looked like an opportunistic bid from the Dubai national oil company. It is the second approach, and the last from Dubai was in 2009, when the oil price was last flat on its back.
Valuations in the sector look suspiciously cheap, if you are prepared to take a the long view. The other day I highlighted Faroe Petroleum. Now consider Ophir Energy. Floated in 2011 at 250p, the shares added 4½ to 129¼p yesterday on indications, in the 2014 figures, that it is well in sight of becoming self-sufficient with exploration and other costs balanced by the cash coming in from production.
Ophir has just completed the all-share purchase of Salamander Energy, which brought with it some operating wells in the Far East. After the dust settles the company will have $800 million in the bank
The market capitalisation is about $1.3 billion, which means the rest of Ophir — Salamander, gasfields off Tanzania operated by BG Group, fields off Equatorial Guinea and sundry other bits — is valued by the market at $500 million.
Yet the cashflow from those Salamander wells this year alone is set at $150 million.
Ophir is committed to spending $250-$300 million this year, a little less than half on exploring for fresh wells. It needs to spend another $150 million to get both Guinea and Tanzania to a stage when the decision is made to go ahead, and has the option of selling down stakes in both.
It is cutting capex over the next two years by $250 million. More by luck than judgment, it sold a stake in three Tanzanian blocks in March for $1.3 billion, a price which looks pretty good today.
This financial flexibility allows it to pick up any cheap assets that come along while continuing exploration at the most promising prospects in a wide-ranging portfolio which includes places such as Gabon, the Seychelles, Burma and Kenya.
I am not suggesting you pile huge sums into Ophir. It seems, though, that the price may have not much further to fall, if oil stays where it is, then the company is among the better geared for any recovery.
MY ADVICE Buy long term
WHY Shares are valued at far less than the sum of the parts and capex is set to remain low, so Ophir looks as well placed as any for recovery
Lamprell
Revenues $1.1bn
Dividend Nil
One analyst referred to Lamprell’s return from near-death as “incredible”. The 2014 figures suggest it was mainly a matter of carrying out its main work of building oil and gas platforms more efficiently while quitting the unprofitable legacy contracts that brought the company low in the first place.
The company raised a net $110 million via a rights issue in the summer, of which $60 million was spent on improving practice at its UAE production facility. The company lost $110 million in 2012. Last year profits after tax and before exceptionals came in at $93.2 million, more than doubled from $45.1 million in 2013, as margins improved from 10.6 per cent to 17.2 per cent on largely flat turnover.
The most impressive statistic, though, is the $5.2 billion of potential work stacking up, including five rigs for long-term customers. Lamprell is guiding towards a 10 per cent fall in revenues this year as new building is delayed but has no need to take work at unattractive margins.
The shares, up 16p at 118p, sell on 10 times earnings, This might look cheap, but as with Cape yesterday, sentiment may still take a while to return to the sector.
MY ADVICE Avoid for now
WHY Numbers are good, but sector will remain friendless
Next
Sales £40bn
Dividend 150p
When confronted by any spare cash at Next, the approach of Lord Wolfson of Aspley Guise is plain enough. If it is not needed for investment, or to pay the taxman, the bank manager, or fund the ordinary dividend, then it should go straight to investors.
The Next chief is also keen to say just how much to expect, and to signal well in advance revenues and profits. This should make analysing Next shares simplicity itself.
In the year to the end of January £363 million of extra cash was generated, and £361 million was handed back. In the current financial year, pre-tax profits are expected to be between £785 and £835 million, against £782.2 million, on sales up by between 1.5 per cent and 5.5 per cent. Next watchers will know that these forecasts are regularly exceeded; sales growth this year will be weighted to the second half, as those sales lap the poor trading conditions during the cold autumn that prompted a profits warning at the end of October.
A similar amount of excess cash, will be generated and returned this year. The only complication to all this admirable clarity is that above a certain share price it is not economic to buy back the shares and special dividends are paid instead. That price is £68.27; Next shares fell 305p to £73.15 on some cautious comments, but they are not going to fall below that level in the appreciable future.
Next looks set to pay out 405p in ordinary and special dividends this year, analysts say, which suggests a forward yield of 5.6 per cent. That, and the support it gives to the shares, makes them a clear enough buy.
MY ADVICE Buy
WHY Dividend and cash generation prospects
And finally ...
Shares in Emis Group are up about 50 per cent over the past year, giving a market cap well in excess of half a billion pounds, not bad for a maker of highly specialised software for healthcare. They were up again yesterday on numbers for 2014 that showed double-digit organic growth, further market share gains and strong cashflow. Emis has almost completed the roll-out of its main product to English GPs and is heading for the same in Wales; it has also won its first international electronic patient record contract, in Gibraltar.
The Next chief is also keen to say just how much to expect, and to signal well in advance revenues and profits. This should make analysing Next shares simplicity itself.
In the year to the end of January £363 million of extra cash was generated, and £361 million was handed back. In the current financial year, pre-tax profits are expected to be between £785 and £835 million, against £782.2 million, on sales up by between 1.5 per cent and 5.5 per cent. Next watchers will know that these forecasts are regularly exceeded; sales growth this year will be weighted to the second half, as those sales lap the poor trading conditions during the cold autumn that prompted a profits warning at the end of October.
A similar amount of excess cash, will be generated and returned this year. The only complication to all this admirable clarity is that above a certain share price it is not economic to buy back the shares and special dividends are paid instead. That price is £68.27; Next shares fell 305p to £73.15 on some cautious comments, but they are not going to fall below that level in the appreciable future.
Next looks set to pay out 405p in ordinary and special dividends this year, analysts say, which suggests a forward yield of 5.6 per cent. That, and the support it gives to the shares, makes them a clear enough buy.
Follow me on Twitter for updates @MartinWaller10
