BP pumps up its performance

The Investment Column

These are happy days for BP. The embarrassment of having to halve the dividend in 1992 is now no more than a bad and fading memory; BP is back as Britain's biggest company; and Sir David Simon, the architect of the dramatic turnaround, is the country's top industrialist, according to a recent poll of fellow business leaders.

The view that BP seems to be pushing all the right buttons was borne out by yesterday's first-quarter profits of pounds 629m (pounds 464m). They broke all records - apart from a freak first three months in 1986 when crude oil prices crashed and huge stock losses sharply reduced the tax charge.

Exploration and production, the main income stream, saw operating profits rise 36 per cent to pounds 737m but it would be too easy to put this down just to a rise in the oil price from $16.72 a barrel to $18.50 during the period.

BP says the higher oil price merely offset falling chemicals margins. Rather, it reckons the $160m underlying improvement came entirely from what it calls self-help. Half of this was due to higher volumes, due to the unusually cold winter in Europe.

The rest came in reduced costs, which, all other things being equal, should flow straight to the bottom line, pushing full-year profits to pounds 2.3bn or above, implying a p/e ratio of about 14.

Even on the chemicals side, where profits almost halved to pounds 128m as rising feedstock prices hit margins, BP appears to be doing better than most of the other oil majors. The outlook here is encouraging, with demand showing no sign of tapering off and only limited capacity coming on-stream.

Elsewhere, the UK petrol forecourt price war took its toll on the marketing side, but better refining margins improved the division's overall profit contribution from pounds 43m to pounds 156m.

The right sort of records are also being broken on the balance sheet. Net debt of $7.1bn, for example, is just 27 per cent of equity - the lowest since 1987. All this, and promises to pay out 50 per cent of underlying earnings to shareholders in the medium term, suggests that the shares are set to continue their recent strong run.

The big cloud is the prospect of sharply lower oil prices if Iraq is allowed to re-enter the world market. Talks are continuing between the United Nations and Baghdad about lifting sanctions, but Sir David thinks a resolution is no more likely this time around and he is factoring in an oil price of $16-$18 a barrel for the rest of the year.

He's probably right - it is hard to see the oil embargo being lifted this side of the US presidential election or until there is a change in the Iraqi leadership. All of which indicates that the shares, which encountered some profit-taking yesterday, down 13p to 569p, look pretty good value.

Chiroscience is still overvalued

The City's ability to suspend disbelief can be a wonder to behold. Promoters with hard-to-verify claims have parted investors from their money for centuries, but the rise and rise of the biotechnology sector has been impressive even by past standards.

Chiroscience is a case in point. Floated at 150p just over two years ago, the shares only broke through their issue price last year, boosted by prospects for its Levobupivacaine anaesthetic following a link-up with Swedish drugs group Pharmacia. For most of this year the shares drifted but since the end of April, in a week, they effectively doubled to 500p after rising 45p yesterday.

That surge has come on the back of the results of pre-clinical trials showing that Chiroscience's matrix metalloproteinase inhibitor against cancer had produced better results at this stage of its development than Marimastat, a more advanced rival being developed by British Biotech. Hopes for Marimastat have given British Biotech a market capitalisation sufficient to put it on the verge of the FT-SE 100 index.

No doubt Chiroscience's success with an MMP-related drug is coincidental, but it has clearly had a wonderful effect on the share price, which has come in handy given that the company is now going it alone without Pharmacia and yesterday announced a placing to raise a net pounds 40.3m. Shareholders are being offered one new share for every seven held at 410p to pay for a pilot-scale drug production facility being sold by E Merck for pounds 5.5m and to garner funds for Chiroscience's development needs for the next few years.

The bull case is that the company's Dexketoprofen pain killer could be launched in Spain soon, making it one of the first of the biotech babes to actually bring a product to market, while its purer, "chiral", chemistry offers lower risks, as it relies on established drugs.

Its existing business has managed to nearly triple sales to pounds 4.96m last year, even if pre-tax losses deepened from pounds 9.23m to pounds 11.6m. But its really new compounds remain around five years from the market and its near-term prospects are likely to be subject to generic competition.

At pounds 413m at the placing price, Chiroscience remains overvalued.

Gus Carter offer is the best bet

The rumoured offer from Stanley Leisure for Gus Carter is probably the best end to an unsatisfactory year on the stock market for the North- east-based bookie. For a company that makes a living reading future probabilities, Carter got the impact of the national lottery on its business spectacularly wrong and without the prospect of a bid shareholders would be looking at a sizeable loss.

Announcing a sharp fall in profits within months of coming to the market a year ago was an embarrassment for both the company and its adviser, Wise Speke, and it was no surprise that the shares sank from their 80p placing price to a low of 49p last November. Bid rumours pushed them up to 78p by the weekend and yesterday's confirmation that the two companies were talking about a price slightly above that put another 6p on the price for an 84p close, 5 per cent above the flotation level.

A takeover of Carter's 72 betting shops by Stanley, which itself runs 400, is the just the latest merger in a continuing consolidation of a hard-pressed industry. With Sunday betting pushing up the costs of running bookies without any appreciable uplift in revenues, it is not likely to be the last. Only the strongest can withstand the onslaught of the lottery, which has radically altered the discretionary spending patterns that determine the profitability of gambling businesses.

The Trewhitt family that still owns a majority of the shares, even after cashing in pounds 2m worth at last year's flotation, will do well enough out of the pounds 13m acquisition not to worry about the pounds 500,000 they wasted on the costs of coming to the market. But plainly a trade sale would have made more sense in the first place and shareholders who bought the leisure industry hype 12 months ago will count themselves lucky to have secured a no-loss exit. Not all stock market mistakes have such a happy ending.

News
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Sport
Arsenal supporters gather for a recent ‘fan party’ in New Jersey
football
Sport
sportDidier Drogba returns to Chelsea on one-year deal
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
film
PROMOTED VIDEO
Life and Style
Balmain's autumn/winter 2014 campaign, shot by Mario Sorrenti and featuring Binx Walton, Cara Delevingne, Jourdan Dunn, Ysaunny Brito, Issa Lish and Kayla Scott
fashionHow Olivier Rousteing is revitalising the house of Balmain
News
people
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
News
BBC broadcaster and presenter Evan Davis, who will be taking over from Jeremy Paxman on Newsnight
peopleForget Paxman - what will Evan Davis be like on Newsnight?
Life and Style
fashionCustomer complained about the visibly protruding ribs
Voices
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Sport
Dejan Lovren celebrates scoring for Southampton although the goal was later credited to Adam Lallana
sport
News
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

The benefits of being in Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Test Analyst - UAT - Credit Risk

£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Evan Davis: The BBC’s wolf in sheep’s clothing to take over at Newsnight

The BBC’s wolf in sheep’s clothing

What will Evan Davis be like on Newsnight?
Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

Finding the names for America’s shame

The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
Inside a church for Born Again Christians: Speaking to God in a Manchester multiplex

Inside a church for Born Again Christians

As Britain's Anglican church struggles to establish its modern identity, one branch of Christianity is booming
Rihanna, Kim Kardashian and me: How Olivier Rousteing is revitalising the house of Balmain

Olivier Rousteing is revitalising the house of Balmain

Parisian couturier Pierre Balmain made his name dressing the mid-century jet set. Today, Olivier Rousteing – heir to the house Pierre built – is celebrating their 21st-century equivalents. The result? Nothing short of Balmania
Cancer, cardiac arrest, HIV and homelessness - and he's only 39

Incredible survival story of David Tovey

Tovey went from cooking for the Queen to rifling through bins for his supper. His is a startling story of endurance against the odds – and of a social safety net failing at every turn
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little