Friday, 25 April 2014

Amerisur Platanillo-15 update

Amerisur Resources is an independent full-cycle oil and gas company focused on South America, with assets in Colombia and Paraguay. I have a holding in my growth portfolio (epic code: AMER).

Amerisur provided an update on their Platanillo-15 field. Following their completion of Platanillo-17 the Serinco D-10 rig was moved from Platform 3N to Platform 9S in order to drill a further 3 wells.

Platanillo-15 was spudded on 23rd April 2014 and will be drilled directionally to a reservoir target approximately 1,602ft south-west of the surface location. The total depth of the well will be approximately 8,589ft MD with a maximum inclination of 17°. The Company expects log data from this well by the end of May.

When the three wells at Platform 9S are completed and placed on production the Company intends to shift drilling operations to Platform 5S from which a further 2 wells will be drilled. At that point the Platanillo field South and Central Lobes will benefit from 17 new wells and 3 side-tracks which the Company considers, on success, will support a prudent plateau oil rate in the absence of export constraints of some 12,000 BOPD.

This production estimate compares to an average BOPD in the last financial year of 4,730 that produced sales of $169.2m, earnings of $46.8m and EPS of $0.044.  So if 12,000 BOPD were achievable by 2015 then we might expect sales of $429.2m, earnings of $200m and an EPS of $0.188.  That would place the shares on their current price of 55p at a prospective P/E valuation of less than 5.  If they can resolve the transportation problems soon, this looks like an interesting value proposition.

Pearson IMS


An international media and education company, providing educational materials, technologies, assessments and related services to teachers and students.  Owner of The Financial Times and part owner (47%) of Penguin Random House.  I have a holding in my income portfolio (epic code: PSON).

Pearson issued their first quarter IMS today and stated that trading is in line with expectations.  In the first three months of the year, sales excluding Penguin and Mergermarket increased by 2% at constant exchange rates and 1% on an underlying basis, to £0.9bn.

Headline sales though declined 6% due to the strength of sterling against the US dollar and key emerging market currencies.

For the year management expect to report adjusted EPS of between 62p and 67p.

Pearson should benefit substantially from the US introduction of "Common Core" in schools across the country, see here for a discussion on the standard.  There is some considerable local state opposition, but the roll-out has started.  

Thursday, 24 April 2014

Unilever 1st qtr trading statement

Unilever Logo

A manufacturer and supplier of fast moving consumer goods, with more than 400 brands focused on health and wellbeing, 14 of which generate sales in excess of €1 billion a year. I have a holding in my income portfolio (epic code: ULVR).

Unilever announced their first quarter trading statement today showing turnover having decreased -6.3% to €11.4bn that reflected a negative currency impact of -8.9%.

Eliminating the effect of currency, acquisitions and disposals underlying sales growth was +3.6% with underlying volume growth contributing +1.9% and pricing +1.6%.  As a comparison Proctor & Gamble had underlying sales growth of 3% for their 3rd quarter to 31 March announced yesterday. 

Emerging markets were up +6.6% with Latin America particularly strong at +9.8%.  Although comparison with previous years' Quarter 1, underline the headwinds in developing markets:


Underlying sales growth by major geographic areas were:

Asia/AMET/RUB +5.8% 

The Americas +3.7%

Europe +0.1%

There was a decline in North American sales due to the timing of Easter, the decline of the margarine market and weak sales in dressings.  Management have stated that they are undertaking a strategic review of their North America pasta sauces business and the Slim.Fast brand, so we may expect further divestments and it is likely that these brands may attract a price close to €1.45bn ($2bn) 

Underlying sales growth by product categories were:

Personal Care +4.5%

Foods -1.7%

Home Care +7.4%

Refreshment +5.9%

Home Care had a strong performance due to new product launches and management state that the decline in Foods was largely explained by the later timing of Easter in 2014.

These results were much as expected following Polman's comments at the time of the prelims:

"...Looking forward, we anticipate ongoing volatility in the external environment and are positioning Unilever accordingly..."  and "...Slow market growth expected to continue in 1st Half..." followed by "...late Easter will shift volume from Q1 to Q2..."  
So a solid looking performance against a background of reduced levels of growth from emerging markets and the quarterly dividend has been increased by +6% to €0.285, but of course with the strength of sterling this translates to just a +2.1% increase to 23.38p.

Wednesday, 23 April 2014

GlaxoSmithKline transaction with Novartis

GlaxoSmithKline a global healthcare company that develops, manufactures and markets pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-related consumer products.  I have a holding in my income portfolio (epic code: GSK). 

Glaxo announced yesterday three major transactions with Novartis:
  1. GSK and Novartis will create a new world-leading Consumer Healthcare business with 2013 pro forma revenues of £6.5bn.  GSK will have majority control with an equity interest of 63.5%.
  2. GSK will acquire Novartis' global Vaccines business (excluding influenza vaccines) for an initial cash consideration of $5.25bn with subsequent potential milestone payments of up to $1.8bn and ongoing royalties.
  3. GSK will divest its marketed Oncology portfolio, related R&D activities and rights to its AKT inhibitor and also grant of commercialisation partner rights for future oncology products to Novartis for an aggregate cash consideration of $16bn (of which up to $1.5bn depends on the results of the COMBI-d trial).
As a result of theses transactions GSK shareholders will receive a return of £4bn capital.
GSK mention that the transaction is expected to be accretive to core EPS from first year and is expected to complete during the first half of 2015.  Management also state that the proposed transactions would increase their annual revenues by £1.3bn to £26.9bn on a 2013 pro forma basis.
This looks to be a good deal for GSK, who after the transaction will have 70% of sales focused on the four key areas of: Respiratory, HIV (ViiV Healthcare), Vaccines and Consumer Healthcare.  GSK have a further 14% of sales that relate to older mature products that currently are undergoing a strategic review, so I would expect further divestments over the next 12 months.
The return of capital (ROC) is likely to follow the format of previous examples this year (i.e. VOD; MRO; IMI) and shareholders should have the choice of either receiving the ROC as income or capital, with a share consolidation so as not to affect the share price.
As an example this may take the form of a ROC of 82p for every share held and a consolidation that replaces every 20 shares with 19 shares. 
So an investor holding 10,000 shares worth £164,000 would receive £8,200 of cash (as income or capital depending on his tax position) and his 10,000 shares would become 9,500 shares - worth £155,800 (i.e. £164,000 less the ROC of £82,00).
The share price both before and after consolidation is 1640p. 

Tuesday, 22 April 2014

Amerisur finals

Amerisur Resources is an independent full-cycle oil and gas company focused on South America, with assets in Colombia and Paraguay. I have a holding in my growth portfolio (epic code: AMER).

Amerisur announced their full year results to 31 December 2013 today with revenue up 301.0% to US$169.2m, operating profit up 279.1% to US$74.3m and EPS up 236% at $0.044.  Free cash flow was a healthy $32.5m and they ended the year with net cash of $71.6m up from $47.0m last year. 

Management expect the capital expenditure programme for 2014 to be $75m which is well covered by the opening net cash and expected free cash flows in the year.

These results although good, have been constrained all year by the ongoing transportation of oil to the export markets.  This has off-set a quite exceptional year of exploration and discovery, indeed management state that although the Platanillo field production remains constrained in the range 7,000 to 7,500 BOPD they say that a conservative estimate for production capacity is approximately 10,000BOPD. 

With Proven & Probable reserves of 32.8m barrels, a healthy 2014 drilling programme of seven new wells in Platanillo, three in Put-12 and a first well in Paraguay, along with the completion of the Ecuadorian pipeline in the second half of the year that will substantially ease capacity issues; this year could form a strong base for substantial growth during 2015 and beyond.   

Management state that they are confident that their programme for 2014 will allow them to significantly increase production, increase their reserves and continue their strategically sound approach to exploration.

These numbers place the current share price of 56.5p on a P/E above 21; so it would appear no longer substantially underpriced, but further drilling successes and finally resolving the transportation problems this year and 2015 results may move today's price down to a low single digit P/E.  Still plenty of risk here, but today's price is a better offer than a year ago (52p), due to that risk reducing.


Friday, 18 April 2014

Bhp Billiton nine months operational review

A diversified natural resources company and among the world’s largest producers of major commodities, including aluminium, coal, copper, iron ore, manganese, nickel, silver and uranium, and has substantial interests in oil and gas.  I have a holding in my income portfolio (epic code: BLT).

Bhp Billiton issued their nine months operational review and in summary the nine months ended March 2014 saw record production achieved for four commodities and at 10 operations.

By Major resources:

Strong operating performance throughout the period, the relatively limited impact of the wet season and the continued ramp-up of Jimblebar underpinned record production at Western Australia Iron Ore of 163 million tonnes (100% basis). Full-year production guidance has been raised by a further five million tonnes to 217 million tonnes (100% basis) - +28% up on 2013.

Queensland Coal achieved record annualised production of 69 million tonnes (100% basis) in the March 2014 quarter. A sustainable improvement in productivity and the successful ramp-up of Daunia has underpinned an increase in total metallurgical coal production guidance to 43.5 million tonnes for the 2014 financial year - +16% up on 2013

Petroleum liquids production increased by 16% to 77 million barrels of oil equivalent for the nine months ended March 2014; total petroleum production for the 2014 financial year is expected to be approximately 245 million barrels of oil equivalent - +4% up on 2013. The overall reduction in full-year guidance has been mitigated by an increased contribution from higher-margin crude and condensate.

Full-year copper production guidance remains unchanged at 1.7 million tonnes - +41% up on 2013.
There has been much press speculation on potential divestments of their minor resource holdings such as manganese, nickel etc.. From management's response to this, it is clear that they see a Bhp Billiton with just the resources commented on above plus Potash, would provide sufficient diversification and stronger free cash flow growth.  Although divestments are clearly on the cards, it may be some time before they are realised.

Reckitt Benckiser 1st quarter IMS

Reckitt Benckiser Group is a manufacturer and marketer of branded products in household, health and personal care products, sold into nearly 200 countries from operations in over 60 countries.  I have a holding in my income portfolio (epic code: RB.) 

Reckitt Benckiser announced their first quarter IMS on 16 April.  They stated that revenue growth (ex RBP) was +5% at constant currencies and a like-for-like revenue growth (ex RBP) was +4%.
Total revenue was £2,368m down -6% on last year, due to a -9% negative effect from foreign exchange translations.
By territories like-for-like growth was:
ENA (Europe/North America) +2%;
LAPAC (Latin America/Asia/Australia & New Zealand)  +8%;
RUMEA (Russia/Middle East/Africa/Turkey)  +4%;
Food +3%
Pharma -11%
By product groupings like-for-like sales growth (excluding Food and Pharma detailed above) was:
Health +11%

Hygiene +2%

Home +1%

Portfolio -3%

Management stated that the Group is on track to achieve its FY 2014 financial targets of net revenue growth of +4-5% and flat to moderate operating margin expansion.
No reason to change my view on RB. and they remain a core income portfolio holding.  Management state that they expect to provide more detail on the likely disposal of the Pharmaceutical business at the time of the interim announcements. 


Monday, 7 April 2014

API pre-close trading update

API Logo

API Group PLC a global supplier of foils, films and laminates.  I have a holding in my growth portfolio (epic code: API).

API Group issued a pre-close trading update today, stating that they experienced a strong overall trading performance in the second half. 
The recovery in the second half, after the weak first half, was insufficient though to fully compensate, so that the full year results are now anticipated to be at the lower end of expectations.  This will therefore likely produce EPS of 8.9p and places a P/E rating of just 7.5 on the shares.
By product group they stated that:
Holographics returned to break even in the last quarter.
Laminates results improved after a full six months contribution from the major new supply contract.
Foils Europe continued to make solid progress after the first half re-organisation of its UK operations. 
Foils Americas' volume weakened unexpectedly in the final three months.  
Management also said that further progress has been made on debt reduction and they expect to report a positive cash position at the year end, for the first time in 15 years.  This compares to a net debt position of £5.2m at the interim stage.

The announcement caused a 7.5% decline in the share price to 67p, which offers a reasonably priced buying opportunity for a business that has further opportunity for growth (see here for my initial write-up on 16 February).