Small Talk: Great Eastern Energy taps into India's growth
Monday 10 January 2011
The Indian economy is growing fast. Last year's expansion is seen at about 8.4 per cent, and this year analysts are eying a similar performance of about 8.6 per cent. Goldman Sachs expects the country to notch up 8.7 per cent growth this year before cooling a little in 2012, when it sees 8.3 per cent growth in India's gross domestic product.
The strength calls for a variety of things – not least energy, which is needed to power the country's factories and offices. This is where Great Eastern Energy Corporation comes in.
The business, founded nearly two decades ago, was awarded its first concession to explore for coal bed methane, or CBM, in India's West Bengal state in 2001. Last year, it snapped up a second block in the southern Tamil Nadu state.
Simply put, CBM is natural gas trapped in coal seams. In West Bengal, Great Eastern extracts the gas, and, using its own infrastructure, pipes it out to customers in the industrial region close to the block. Customers range from small to large enterprises keen to have a reliable source of fuel, and Great Eastern, which is expected to post an interim management statement soon, also sells compressed natural gas at retail outlets in and around its licence area.
The market, as we mentioned earlier, is fertile. Back in 2009, imports met around 74 per cent of India's crude oil, some 13 per cent of its coal and nearly a quarter of its natural gas needs, according to the analysts at Religare. International Energy Agency figures suggest that primary energy demand will continue rising in coming years, with growth between 2006 and 2030 seen at about 3.5 per cent, against 1.6 per cent for the world as a whole.
Natural gas ranks number three in the country's energy basket, and though the Indian gas market is currently quite small compared with the UK and US, it has been growing. Analysts expect a continuation of this trend, boding well for the likes of Great Eastern.
Rockhopper set to scale new heights
Sticking with the oil and gas theme, take a look at Rockhopper Exploration, the oil prospector focused on the Falklands Islands, which enjoyed quite a run over the past 12 months. Despite some uninspiring news in October, when Rockhopper warned it lacked data for a planned technical report to support its initial resource estimate at its closely followed discovery at the Sea Lion well, the stock was up nearly 500 per cent over 2010.
Impressive as that is, Panmure Gordon reckons that Rockhopper could rally even higher this year. In a round-up of its top picks issued late last week, it reiterated its 530p target price, well above the current share price of 373p, and named the company as its top choice in the oil exploration and production sector. Panmure reckons there should be an additional upside at Sea Lion, pointing out that as the initial well threw up thicker sands than expected, "the company would want to see if this is repeated across the rest of the prospect, [thus] allowing an increase in volumes". The investment bank also highlights Rockhopper's potential to expand the discovery to the south, pointing out that it is fully funded and boasts some attractive exploration opportunities.
"Having proved that the play works with Sea Lion, the company could acquire additional three-dimensional data on its acreage. This should identify additional prospects that can be drilled in the current campaign, adding significant shareholder value," Panmure explained. "Should Sea Lion prove to be commercial, smaller discoveries could be inexpensively tied into any infrastructure that is put into place." Investors will no doubt have their fingers crossed for further gains.
Sinclair Pharma targets Asia Pacific
In December, investors in Sinclair Pharma saw a flurry of deals – four in less than 10 days, in fact. The month began with the company signing a licence agreement with Medpharm to develop a patented new spray for athlete's foot.
The speciality pharmaceuticals group followed that up with the acquisition of Cranage Healthcare, a distributor of wound care products, and with a partnership deal with Invida to market its dermatology and wound care products in the Asia-Pacific region, initially in the lucrative markets of Australia, China, Hong Kong, Indonesia and Singapore.
The Invida deal was particularly well received by the market, with analysts at Singer noting that "further out, launching the majority of Sinclair Pharma's portfolio in South east Asia with a such a major distributor ... could significantly influence [its] outlook and value".
The final development was news of a partnership deal with Sunstar, one of the leading oral care companies in the world, to launch Sinclair's mouthwash product, Decapinol, in the US.
All this has driven Sinclair's share price from about 31p at the beginning to December to 41p. The comeback must be a relief for investors who bought in around October 2009, when the stock was trading at 44p. The intervening period saw it slide to 25.5p, a level it was trading at as recently as last August. If the recent momentum is anything to go by, they may be in for a happy new year.
As a meter, the finance director Alan Olby recently signalled that Asia-Pacific may just mark the beginning of a full-fledged push into emerging markets, saying: "We are looking to roll out into the Middle East, Eastern Europe and South America, and India as well. We are in some discussions on deals in key territories."
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