The Investment Column: Overseas opportunities and oil price make Burren a buy

London Stock Exchange; Thorntons
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Our view: Buy

Share price: 790p (-38.5p)

Four years ago Burren Energy was producing 4,900 barrels of oil a day. Yesterday, the group put out a trading statement boasting this figure now stands at 34,000 barrels. This fact shows better than any other the phenomenal growth Burren has enjoyed in recent years.

Unsurprisingly, the company's shares have been a terrific performer over this period. They listed in December 2003 at 135p and closed at 790p yesterday. Clearly the soaring oil price has helped Burren greatly and given the present tension in the Middle East it is very likely to go higher in the coming months. As a result the group is generating buckets of cash. In the past six months alone its cash balance has almost doubled to $215m (£118m).

This puts Burren in a great position of being able to continue to develop new business opportunities while proceeding with its drilling programme. In fact, analysts believe that there is also plenty of scope for increased cash returns to shareholders.

Fresh opportunities for the group include potential gas deals in Turkmenistan and other projects in the Caspian region and Middle East. Meanwhile, it will push ahead with more drilling in the Congo where it has had its key successes so far. Its planned exploration programme over the next six months has the potential to increase its reserves in the central African country by a third to 420 million barrels of oil.

Burren is also expected to dig a series of appraisal and exploration wells in Turkmenistan, where, as well as India it boasted yesterday of having made two significant discoveries.

One problem the group is likely to face as it goes around the world in search of new opportunities is the ever more fierce competition to secure prospective oil assets. This has been particularly obvious in the Caspian region of late but is a problem faced by all players in the sector.

Burren shares look to offer good value at current levels. They are well below their January peak of 1,100p. Analysts believe that the drilling programme the group has scheduled for the Congo alone during the rest of the year could add up to 180p a share to the company's valuation. Buy.

London Stock Exchange

Our view: Reduce holdings

Share price: 1,120p (-6p)

A note from Credit Suisse to its clients yesterday urged them to reduce their exposure to the London Stock Exchange. The Swiss broker made some very good arguments for selling LSE shares at current levels.

First, it pointed out that the bourse is up against pretty tough comparatives. The exchange's order book volumes enjoyed a 25 per cent rise last year between June and July to £103bn of valued traded.

It will struggle to match such a figure this time around. Second, investors are now fully acquainted with the LSE's growth strategy and its plans to return money to shareholders, and are likely to start asking what more it has to offer soon.

Finally, Credit Suisse highlights the hefty bid premium already factored into the group's stock price. Given the focus of the New York Stock Exchange on its merger with Euronext, this leaves Nasdaq as the only bidder in town for the LSE and makes the valuation of the exchange's shares look undeserved. At current levels, which see the stock trading at 23 times forward earnings, readers would do well to cut their holdings.


Our view: Hold

Share price: 127.75p (- 4.25p)

Is there a recovery under way at Thorntons? Yesterday's update from the chocolate retailer certainly points to an improvement in trading. It showed a revival in like-for-like sales in the second half of the group's financial year which fell just 1.8 per cent compared with a decline of 4.8 per cent in the first half.

This came thanks to a strong Easter season. There was also good news from the online arm - Thorntons Direct - where sales rose 6.4 per cent to £5.5m.

But overall, total sales at Thorntons fell 6 per cent on last year to £176m. So although the retailer seems to be moving (slowly) in the right direction it is far too early to talk of any meaningful recovery.

Much will depend on the strategic review of the business currently being prepared by Thorntons' new chairman, John von Spreckelsen. He is expected to unveil his proposals alongside the group's full-year results in September.

Mr Von Spreckelsen has a good track record when it come to turning around struggling retailers. He worked wonders at the convenience store operator Somerfield, which was eventually sold to a financial consortium, and Thorntons has done well to attract someone of his calibre to lead it.

Should he fail there will be no shortage of bid interest. The Icelandic investment firm Baugur and the German chocolates group Lindt have often been mentioned as predators while a fresh management buyout offer is also a possibility.

Although Thorntons' high rating (25 times forward earnings) stops us recommending the stock as a buy, it is certainly worth holding on to.