Wednesday, 29 April 2015

Amerisur operations 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 issued an operations update today, informing the market that they have reactivated a limited production volume from Pad 3N in the Platanillo field.  Pad 3 is currently producing around 1,300 BOPD, and the entire field production is currently ~5,030 BOPD.

Operational netback to the Company during early April was US$24 per bbl, with an estimated sales price of US$51, and the volume contribution from Pad-3N is expected to increase operational netback to US$29 per bbl at a sales price of US$55.

Once the interventions of wells on Pads 9 and 5 are completed, field production in May is expected to be around 5,600 BOPD, with an operational netback of US$30 per bbl in that month.

It is worth comparing this detail with their guidance here in February.  Their estimate of $34 EBITDA was based on volume of 2.22m barrels of oil (6082 BOPD) a netback of $24.68 and an average sales price of $48/bbl.

So current production is -17.3% below the average guidance for the year, and the netback during early April is -3% above guidance.  May's increased production will be -7% below the average guidance, but the netback will, if the average sale price remains at around $55, more than eliminate the production short-fall.

This looks to be good control of the resource by management. 

Greggs trading update & capital structure review

Greggs the Bakers

The leading bakery food-on-the-go retailer in the UK, with almost 1,700 retail shops throughout the country.  I have a holding in my income portfolio (epic code: GRG).

Greggs announced today a trading update and a capital structure review.  The update covered the 16 weeks to 25 April 2015 and sales grew by 5.0% and like-for-like sales in their own shops grew by 5.9% - ahead of their expectations.  This compared to total sales growth for 2014 of 3.9% (adjusting for the extra week in 2014) and like-for-like sales in their own shops of 4.5%.
During these 16 weeks they have been busy, completing 69 shop refurbishments and opening 24 new shops, including 17 franchised units in transport locations.  They also closed 18 shops, giving a total of 1,656 shops trading at 25 April; this comprised 1,594 of their own shops and 62 franchised units.  They expect to refit 200 to 220 shops in 2015. 
As part of their capital structure review management have stated that they intend to maintain their progressive dividend policy, with a target that the ordinary dividend is two times covered by earnings.
They also see a need to maintain a year end net cash position of around £40m.  They state that due to the leasehold nature of their shop portfolio, they do not believe that it is appropriate to take on structured debt in the way of loans, overdrafts or bonds.
Importantly they have stated that they will not carry out the proposed share buyback announced at the time of the Group's preliminary results.  This is an excellent decision, a pity more management teams, with high P/BV ratios, do not come to this conclusion .  As I stated here at the time of the preliminary announcement "...A buy-back is a poor use of funds, especially with the current share price at over 4x book value..."; I am pleased their review has come to the same conclusion.
Instead of the buy-back management are declaring a special dividend of 20p, at a cost of £20m.  An excellent outcome, with the expectation of this being the preferred route for returning capital in the future for material amounts of excess cash.
In the outlook for the remainder of the year management have stated that they "...expect to deliver good growth for the year as a whole and further progress against our strategic plan..."

As I stated here, I estimate that Greggs on a DCF basis have an intrinsic value of approximately 1375p and at today's price of 1119p (up 4%) would yield 3.9% and have a 22% margin of safety.

Monday, 27 April 2015

Dillistone Group finals

Dillistone Group Plc is a leading global provider of software and services to recruitment firms and recruiting teams within major corporations. I have a holding in my growth portfolio (epic code: DSG).

Dillistone Group announced their full year results today with Revenue was up 6.5% to £8,625k.
The Dillistone Systems division revenue was £4,557k down -7.4%, due to holding back the number of implementations completed in the second half of the year, to enable the successful replacement of the FileFinder 10 product with the new FileFinder Anywhere suite, launched to the market in September 2014.  Incoming orders in the first quarter of 2015 are up on the same period in 2014 and a number of these contracts are larger than normal.  
Voyager Software was up 27% to £4,068k. These numbers included the FCP acquisition made in July 2013 and the acquisition of ISV in October 2014.
Adjusted operating profit (excluding all acquisition costs and amortisation) was £1,820k up 1.5% and adjusted EPS was 8.23p up 6.9% with reported EPS down -8.6% to 5.95p.
Free cash flow was £1,049k compared to £1,299k last year, operating cash flow was similar to last year, but capital and development expenditure was increased by £243k.
A final dividend of 2.7p was declared making a total of 4.0p for the year up 3.9%.
Commenting on trade in the first quarter, management stated that "...Group revenues in the first quarter are ahead of the same period in 2014..."

Results were clearly held back by the decision in the Dillistone Systems division to wait on new implementations in the second half, until the new FileFinder Anywhere product was available.  Dillistone Systems is the higher margin division, so had a disproportionate effect on results.

Although FCF has declined and the average number of shares have increased (due to the two placings), it still returns a FCF yield of 5.14% on the current share price of 106p.  As the benefit from the new software suite Filefinder Anywhere is delivered in 2015 and 2016, I would expect this FCF yield to increase.

Friday, 24 April 2015

Reckitt Benckiser 1st quarter

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 released details of their first quarter trading today, which proved to be very positive.  Revenue increased by 1% to £2,216m and increased by 5% on a like-for-like basis. 

By territories like-for-like growth was: North America +3%; Rest of ENA +5%; Developing Markets +6% and Food +4%.  Management have cautioned that the outlook for Russia remains uncertain given the current market and currency issues, despite a strong performance in the quarter.  South East Asia markets are challenging and Latin America is weaker.

By category like-for-like growth was: Health +13%; Hygene +3%; Home -1% and Portfolio -3%.  Portfolio was affected by weak laundry detergents and fabric softeners.

Management stated that they are on track to achieve their 2015 financial targets of like-for-like growth of +4% and expansion in operating margins.

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, stating that trading is in line with the expectations set out in their full-year results (commented on here) of adjusted EPS of between 75p and 80p for 2015.
Profits are expected to be heavily weighted to the second half and their restructuring charges (expected to be £30m) will be phased towards the first half of the year, so expect a low level of reported earnings at the interim stage.
For the quarter, continuing sales were level at constant exchange rates and declined 1% on an underlying basis to £0.9bn.  Headline sales increased 5% with the benefit from the strength of the US Dollar (60% of sales) against Sterling partly offset by the weakness of key emerging market currencies, the Euro and the Australian Dollar.
The share price was down just over 1% to 1387p early on.  Pearson is one of a number of companies that are expected to benefit from the stronger dollar in 2015, for example a five cent move in the average £:$ exchange rate for the full year (which in 2014 was £1:$1.65) has an impact of approximately 1.3p on adjusted EPS.  Currently the average exchange rate shows over a 10c increase, so a more than 2.6p improvement in EPS if this is sustained for the full year.

Wednesday, 22 April 2015

Bhp Billiton 9 month 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 released their nine month operational review yesterday.  Group production increased by 9% for the period.  Management say they remain on track to deliver Group production growth of 16% over the two years to the end of the 2015 financial year.
By commodity: Petroleum production increased by 6% to a record 192.5 MMboe and guidance for the 2015 financial year remains unchanged at 255 MMboe, a 4.9% increase on last year.  Copper production increased by 1% to 1.27 Mt and production for the 2015 financial year is now expected to be 1.7mt, the same as last year.  Iron Ore production increased by 17% to 172.4 Mt and production for the 2015 financial year is now expected to be 230 Mt, an increase of 12.7% on last year.  Metallurgical coal production increased by 14% to 37.8 Mt and production for the 2015 financial year is now expected to be 49 Mt, an increase of 8.9% on last year.
The guidance for full year zero growth in copper production (prior guidance was for growth of over 6%), reflects the impact of heavy rainfall in Northern Chile in March 2015 and an electrical failure which caused a mill outage at Olympic Dam in January 2015.  The company reduced  the onshore US operated rig count from 26 to 17 during the third quarter, in line with their plan to reduce the operated rigs to 16 by June 2015.
The proposed demerger of South32 (BLT's aluminium, coal (energy), manganese, nickel and silver assets) is also on track and, if approved on 6th May, will see shareholders receive one share in South32 for every share they hold in BLT on 15th May.  BLT are providing a free dealing facility for any shareholder who owns 10,000 or fewer BLT shares to sell their South32 shares, if they do not wish to own them.  I will probably use this facility, as my resultant holding in South32 will be too small and they have no independent performance history to encourage me to increase my holding. 

Thursday, 16 April 2015

Unilever 1st quarter results

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 results today declaring that turnover had increased by 12.3% to €12.8bn that included a positive currency impact of 10.6%. 

Underlying sales growth was 2.8% and by category was:

Personal Care  2.7%

Foods  2.9%

Refreshment  2.5%

Home Care  3.1%

By territory organic growth was:

Asia/AMET/RUB  3.3%

The Americas  4.9%

Europe  -0.4%

The quarterly dividend was increased by 6.8% to €0.302, although due to the weak Euro, the sterling equivalent showed a decline of 6.8% to 21.8p.  In their Euro reporting currency, Unilever have increased their dividend by an average of 8% pa over the past 35 years, an impressive track record. 

CEO Polman stated "...Despite high levels of currency and commodity volatility, we are now starting to see more tailwinds than headwinds in our markets, and expect our initiatives to deliver a further improvement in volume growth in the remainder of the year..."

The shares were up to an all time high on the announcement at 3011p, which places them on a P/E of 22.3 on 2015 expected earnings and a yield of 3%. 

Diageo IMS

Diageo is the world's leading premium drinks business, I have a holding in my income portfolio (epic code: DGE)

Diageo released their nine months IMS today, stating that their nine months reported net sales grew 4.6%, but declined 0.3% on an organic basis and were down 0.7% in the quarter.
Organic net sales growth was highest in Africa, which saw an increase of 6.2% for the nine months and 8.2% in the third quarter.  Asia Pacific saw the biggest decline with a drop of 5.5% for nine months and 6% in the third quarter; the one bright spot being in mainland China, where net sales grew by 13%, driven by the recovery of Diageo's baijiu business.  
Management stated that lower inflation and weak economies will lead to subdued net sales growth in the current year.  CEO Menezes comments that consumers in North America remain the most resilient and while lower gas prices and a more favourable macro outlook have not led to a significant shift, growth in the spirits category is improving.

The shares fell 3.6% to 1896.5p on the release, still 11% above the 12 month low.  I will probably add to my holding if it falls below the 12 month low to provide a yield above 3%.

Telecom Plus trading update


Trading as the Utility Warehouse, Telecom Plus PLC provides a range of services to households and small to medium sized businesses. The Company is engaged in the supply of fixed telephony, mobile telephony, gas, electricity and Internet services through independent distributors. I have a holding in my growth portfolio (epic code: TEP).

Telecom Plus issued a trading update today that was not well received by the market, pushing their shares down by almost 20% to 785p. 

The essence of the statement is that management expects adjusted pre-tax profits of between £52m and £53m, this is after taking account of a ~£6m impact of higher than anticipated leakage and theft in the gas system.  The market was expecting pre-tax of £63m, so even if the £6m is excluded the company will be 6-8% below expectations.  The shortfall is due to the cumulative effect of retail energy price reductions during the fourth quarter and lower energy usage during the year, caused mainly by un-seasonally warm weather.  There will be an ongoing charge for leakage and theft in the gas system, so including this charge for the current year the shortfall against market expectations was 18%. 

The company will recommend a final dividend for the current year of 21p, making a total of 40p for the year, a 14% increase over last year.
Management have recently conducted a detailed review of the unbilled energy debtor carried on their balance sheet and concluded that a total of approximately £11m (net of anticipated tax credit), which has accumulated over the seven years between April 2007 and March 2014, is not recoverable. This relates to higher levels of leakage and theft within the gas distribution network than had previously been anticipated.  Although this has no cash effect, it will require a write-off to profits; as this balance has built up over the years, it is of concern that it has taken them until now before a review has taken place.  Possibly the arrival of the new CFO Schoenfeld in the New Year was the catalyst. 

Management have given guidance that adjusted pre-tax profits for the year to March 2016 should be between £54m and £58m, previous expectations were for £66m and they state that this should enable them to increase the dividend by at least 15%, to not less than 46p per share. Based on the company guidance the company is on a prospective yield of 5.9% and a P/E range of 12-13.   






Wednesday, 8 April 2015

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 final results today and excluding the large impairment charge, were as expected.  Revenue was up 17.9% to $199.5m (my estimate was $200m see here) on a constrained average full year production of 6,242 barrels of oil per day that was up 32%.  The difference between production and revenue was due to the lower oil price in the second half of the year. 

Operating profit was down 7.4% to $68.8m, due to the lower oil price in the second half and increased costs caused by the effects of social unrest within Columbia.

There is an impairment charge in the year of $26.5m due to writing down the investment in the Fenix Block that is considered geologically too complex to exploit at the current oil price.  Earnings were $27.4m and if we exclude the one-off impairment about $45m, similar to last year's $46.8m, but less than the $50m I was expecting. EPS was 2.55c a decline on last year of 42%.

Net cash at the year end was $95.6m an increase of $24m, due to free cash flow of $12.8m ($32.8m last year), net proceeds from investments of $10.3m and cash received of $0.9m on the exercise of share options.  They also have a lending facility of £175m with a consortium of banks.  This places the company in a strong position to survive a weak oil price over the next 18-24 months if necessary and continue exploration of a limited number of wells.

Following management’s decision detailed in their outlook & guidance output was reduced in the first quarter and achieved an average production of 4,380 bopd (expected to be 4,500bopd for the full year).

The share price fell just over 5% on the day to 22.75p, which values the shares on about 28x expected 2015's earnings.  The value proposition for Amerisur at this price is conditional on two events, an increase in the oil price (WTI crude) to around $60 average in 2016 and, successful implementation of the Ecuador pipeline (see here for the latest update and valuation assumptions) by the year-end so that output can be increased and transport costs reduced.   

Royal Dutch Shell acquisition

Royal Dutch Shell a global group of energy and petrochemical companies. I have a holding in my income portfolio (epic code: RDSB)

Royal Dutch Shell announced today a recommended cash and share offer for BG.  The details of the deal are for each BG share 383p in cash and 0.4454 Shell B Shares. 
This deal equates to a value of ~1350p per BG Share; a premium of approximately 52% to the 90 trading day volume weighted average price of 890.4p per BG Share on 7 April 2015.  The total value of the equity is $69bn and ~$12bn of debt will be assumed, so the enterprise value (EV) of the deal is $81bn, compared to Shell's $232bn  
Shell state that the Combination will add some 25% to Shell's proved oil and gas reserves and 20% to production, on a 2014 basis.  Shell also expects the Combination to generate pre-tax synergies of approximately $2.5bn per annum.  Management expects the Combination to be mildly accretive to EPS in 2017 and strongly accretive to EPS from 2018 onwards

This is a very high priced deal at 25x expected 2016 earnings and even after allowing for the expected synergy savings, which might be say $2bn post tax ($2.5bn pre-tax), the price is 15x earnings, compared to Shell's 11x earnings rating.  The price which is 35% of Shell's EV gives them only a 25% increase in proven oil and gas reserves.

On an EV to estimated free cash flow (FCF) basis it looks to be accretive further out, but this relies on crystallising those savings and a factor outside of the control of both companies a higher oil & gas price:

Shell have confirmed that they will maintain the dividend this year at $1.88 and expect to introduce a $25bn share buy-back programme from 2017 to 2024, which would go some way to off-setting the dilutive1.5bn of shares that will be issued in this deal.  At prices up to 2300p, a buy-back would make economic sense, but I am not convinced they are that disciplined.

Of all the major oil & gas companies, Shell has the greatest interest in gas and this acquisition will enhance that gap.  This deal may be a major play on the future of natural gas and the larger role it has to play in world economies over the long-term and for that it may make sense 5-10 years from now, but for the medium term - not a great deal except for holders of BG shares.  The price was down over 5.7% this morning at 2080p.

Wednesday, 1 April 2015

Amerisur reserves and resources 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 issued a reserves and resources update that showed that certified 1P (Proven) gross field reserves were 16.2 million barrels of oil ("MMBO") (2013: 19.8 MMBO) after production of 2.278 MMBO during 2014 and 2P (Proven and Probable) gross field reserves were 24.55 MMBO (2013: 32.8 MMBO).

As production during 2014 was 2.278 MMBO; then current 1P reserves represent an effective 6.7% reduction from year end 2013.

These reductions are due to the model used building in factors that include the relatively poor initial production result from wells Platanillo-15 and Platanillo-16, which served to reset the future average expected initial production rates.  Also adversely affecting the model was the the shut-ins of producing wells, due to social and export issues during the year, which resulted in lower average production rates, that also caused an increase in the future projected decline rate, therefore resulting in lower overall volumes being recovered in the model through time.  Reserves have also been affected by the Board's decision to reduce drilling activity in order to ensure capex at Amerisur is matched by cash flows in the current lower oil price environment.

These would appear to be temporary reductions in the calculation of reserves and resources, due to how the model calculates production rates and rates of decline.  This did not stop the share price falling almost 27% to 22p.  So is today's  good value?  Based on my 2016 estimates here then Amerisur is valued at 11.6x earnings, this assumes an average WTI oil price of $65/bbl for 2016, commissioning of the Ecuador pipeline and increased average production of ~9,000BOPD.  Problem is that a number of people in the industry are expecting today's low price of $45-50 to be around for 18-24 months.