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.

PROMOTED VIDEO
Arts and Entertainment
tv
Sport
Ojo Onaolapo celebrates winning the bronze medal
commonwealth games
Arts and Entertainment
Rock band Led Zeppelin in the early 1970s
musicLed Zeppelin to release alternative Stairway To Heaven after 43 years
Arts and Entertainment
Tracey Emin's 'My Bed' is returning to the Tate more than 15 years after it first caused shockwaves at the gallery
artTracey Emin's bed returns to the Tate after record sale
Environment
Neil Young performing at Hyde Park, London, earlier this month
environment
News
i100
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Prince Harry is clearing enjoying the Commonwealth Games judging by this photo
people(a real one this time)
Sport
Lionel Messi looks on at the end of the final
football
Extras
indybest
News
Richard Norris in GQ
mediaGQ features photo shoot with man who underwent full face transplant
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
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

Project Manager (HR)- Bristol - Upto £400 p/day

£350 - £400 per annum + competitive: Orgtel: Project Manager (specializing in ...

Graduate / Trainee Recruitment Consultant - IT

£25000 per annum + OTE £40,000: SThree: Orgtel are seeking Graduate Trainee Re...

HR Business Partner - Banking Finance - Brentwood - £45K

£45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...

PA / Team Secretary - Wimbledon

£28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...

Day In a Page

The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on