Investment Column: Boardroom woes create uncertainty for ENRC
Wednesday 15 June 2011
Our view: Sell
Share price: 761.5p (+15p)
Few companies can boast a name as grand as the Eurasian Natural Resources Corporation. Better known as ENRC, the unabbreviated version brings to mind some giant of the corporate world – and indeed, the company fits the bill, commanding a market value of nearly £10bn, with more than 70,000 employees.
Those figures reflect the miner's vast operations. It is the world's largest producer of ferrochrome on a chrome content basis and the world's ninth largest producer of traded alumina by volume, not to mention a significant player in the iron ore market.
And yet, ENRC has not looked quite so grand in recent weeks. The annual general meeting saw no fewer than four non-executive directors leave the board. Two – the former GlaxoSmithKline boss Sir Richard Sykes, who was the senior independent director, and Ken Olisa – were voted out.
News of the departures was accompanied by the announcement of a "comprehensive review of its corporate governance". ENRC said the review will be conducted over a three-month period, "with the intention of establishing a board structure that can best support the group while complying with UK corporate governance best practice".
That might have been that. But then there were reports that another independent director, the Cyprus-born investment banker Mehmet Dalman, was considering his position on the board. Though the reports were never confirmed, yesterday it emerged that the ENRC company secretary Randal Barker had resigned.
There is clearly something wrong here. We hope that the review will lead to an improvement at the helm of this giant miner. But until then, we suspect the market is likely to remain cautious.
Add in the fact that this month will see the expiry of the US quantitative easing programme, and we could be in for a period of underperformance as traders reassess the commodity outlook. If the market ends up taking a negative view of metals and minerals, that is likely to hit the mining sector as whole. But recent issues at ENRC could, we fear, make matters worse for this particular stock.
Our view: Speculative buy
Share price: 69.5p (no change)
It sometimes seems like Lord Flight will be found involved somewhere or other with whatever small broker or fund manager you'd care to mention. Is Arden Partners destined to be one of his winners? The ubiquitous peer was confirmed chairman of the operation, which has a decent enough franchise on Aim but a rather more interesting Indian arm, yesterday.
The latter has brought a couple of rather large companies as clients, and Arden is becoming the first port of call for Indian businesses looking to raise cash in London that aren't quite big enough for bulge-bracket firms.
Aim brokers are having a tough time at the moment – commissions are being squeezed, and activity is limited but brokers' salaries aren't falling much. Arden, however, has wind in its sales, and earlier this year came up with a trading update which had analysts scurrying to up forecasts.
It should be borne in mind, that as recently as last year they did the opposite after a profits warning. So earnings, and the shares, will be volatile.
What's more, a valuation of 23 times forecast looks fancy enough. However, it should also be borne in mind that these shares are some way off recent highs and there are grounds for thinking that Arden can deliver.
These shares are only for those with a strong appetite for risk. But we'd make Arden a speculative buy.
Diving in at the deep end is no excuse for shirking the style stakes
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