The Week In Review: All's well with drilling wells at Dana
Saturday 14 October 2006
Dana Petroleum has a busy six months ahead. The oil and gas explorer is expected to have drilled at least five wells in Mauritania and Kenya by April and, says a note from Merrill Lynch this week, their potential is not yet priced into Dana's stock.
The first well, Aigrette, in offshore Mauritania, is being drilled and results are due within a fortnight. However, a series of wells in offshore Kenya - Pomboo and Sokwe - have more potential. Alongside this, Merrill expects Dana to complete a series of asset swaps with Gaz de France. It believes these will give the group exposure to an exciting field in Egypt plus acreage in a North European country, probably Norway.
The group's existing reserves and portfolio of prospects make it a prime candidate for takeover by a larger player. Buy.
The radio and music publishing group Chrysalis is valued at just £210m. That includes its radio assets. Although they have been in the doldrums, they have outperformed rivals and are well placed to stage a recovery should the advertising environment improve. On a sum-of-the-parts basis (the music publishing division alone can justify the current market capitalisation), the shares offer good value. Buy.
Had readers followed our advice and bought into the upmarket jeweller Theo Fennell earlier this year, they would be sitting on a 75 per cent capital gain. This week, shares hit fresh highs after it unveiled a 35 per cent rise in first-half sales. From here on in, the company is focused on Christmas. A good festive season should mean that current earnings forecasts are conservative; hold on for more gains.
3i is a broad-based venture-capital group, running a string of big funds, hunting for bargains among established companies, backing management buyouts and contributing early capital to technology ventures and growing companies. It emerged this week that 3i wants to deepen its presence in Asia and China by committing up to $200m to oil, gas and power companies there. With a slew of lucrative exits expected in the months ahead, buy.
Biofuels shares soared 20 per cent this week as investors responded to positive news. First, it has fixed a problem that jeopardised the quality of its biodiesel. Second, it plans to build two new plants on Teeside, which can each produce an extra 200,000 tons of biodiesel. Yet it is not clear how the company will finance the facilities. It has debt of £85m against a market capitalisation of about £40m, meaning the whole group will soon have to be refinanced. Avoid.
The online fashion retailer Asos has delivered a 93 per cent rise in first-half sales. This followed growth of 86 per cent for the same period last year. Clearly, Asos, which targets fashion-driven 18- to 34-year-olds, is growing at breakneck speed. By the end of this year, its revenues are forecast to hit £35m and pre-tax profits £3.2m. Asos operates in the fastest-growing segment of the UK retail arena. Buy.
Just 10 days after investors forced Hogg Robinson to abandon its IPO, the business travel specialist is back. This week, the group managed to book a no-frills ticket in the support services sector after a last-minute sale more than halved the price it was seeking from shareholders. Hogg makes money by charging its clients fees for each booking it makes on their behalf. Worth a punt.
Where there's muck, there's brass. Biffa, the waste management services operator that demerged from parent Severn Trent this week, confirms that. The group made a profit of £66m last year, tipped to rise to £74m. The shift towards recycling waste and rising landfill prices means that the industry in which Biffa operates is growing at between 5 and 10 per cent a year. As the UK's number two player, it is well placed. Hold
The phenomenal growth at YouGov, the market research group, continues. Profits soared 310 per cent to £4.1m in the 12 months to the end of July, way ahead of the £3.8m City analysts were expecting. The group's key asset is a panel of 107,000 internet respondents. Using them, it says it can predict anything from the winner of the next election to who will win the next X Factor. It is also growing abroad. Buy.
WH Smith is two years into a recovery programme - and it shows. The group, which this summer demerged its news distribution arm, grew its pre-tax profits by one-third last year to £51m before £8m of exceptionals. Kate Swann is focused on cutting £22m of costs and improving margins by sourcing from China. There is more to go for on both areas. But the well will run dry eventually. The shares are pricey, so are no more than a hold.
There is money to be made from Balkan property, with Bulgaria and Romania due to join the European Union in January. Equest boasts a solid management team with extensive business experience of both the Balkans and of the west, making them less likely to get fleeced than investors starting in the region anew. Based on its 100p launch price, Equest is targeting a dividend yield of 7.5 per cent. Buy.
Silverjet hopes to offer transatlantic business class air travel at a third of the price of rivals. Its first scheduled flight from London Luton to Newark Liberty Airport, New York, is due for 25 January 2007. Brokers expect the group as a whole to break even in the middle of 2008. Worth a punt.
These recommendations are taken from the daily Investment Column
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