The Investment Column: Expro is well placed in oil sector despite exchange rate risks

Ceres Power; White Nile
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The Independent Online

Our view: Buy

Share price: 1180p (-20p)

The management at Expro, an oil sector services company, does not want the man in the street to buy the company's shares. "We don't want a retail following," stresses Mike Speakman, finance director.

The problem for Mr Speakman is that investors would be wise to ignore his wishes and take a look at the company, which announced its latest trading statement yesterday, ahead of the firm's year end on 31 March.

By several indicators the company is in pretty good nick. The numbers are expected to be at the high end of expectations, the market for the company's technology is robust, and analysts have been at pains to point out that the group's geographical positions are sound; its technology is as good as anyone's, they say.

But perhaps the best news for investors is that some watchers are expecting bids for the group after a private equity firm, thought to be Candover, made soundings last month.

"Expro is in a good position," says one analyst at Blue Oar. "They have a good business and are perhaps undervalued. Last November the shares were at about £12, so if a bid did emerge, and it's a big if, the group looks undervalued and could eventually go for £15 a share."

The analyst names trade buyers such as First Reserve and GE Energy as potential suitors, as well as other private equity candidates that could yet mount a challenge to Candover.

But even if the firm is not the subject of a buyout war that sends the share price sky high, it is still a good punt, according to watchers at Cazenove. "Expro is possibly the best medium to long-term growth stock in the sector," they say.

The firm views its biggest risk as the sterling/dollar exchange rate. However, most analysts, while acknowledging this risk, point out that the firm's particular exposure to offshore, rather than land sites, is likely to be good for growth. Buy.

Ceres Power

Our view: Buy

Share price: 184p(unchanged)

This firm could be about to hit the big time. Ceres makes fuel cell devices, which it hopes could revolutionise domestic heat and electricity usage. But do not take their word for it; others think so too.

In January British Gas paid the firm £5m to help develop domestic boilers that produce electricity as well as heat. In return, Ceres will provide British Gas with 37,500 fuel cell units.

"The British Gas deal is very important to us," says Peter Bance, chief executive. "We are in the set-up phase, but we're hoping to use this to launch into other markets as well."

The company is pretty ambitious. Even though the project is set to take between two and three years to complete, Mr Bance believes the agreement is a "clear endorsement of the firm's technology".

Analysts think that the deal is just the tonic Ceres has been waiting for, and view pre-tax losses at just over £3m for the year compared with £2.65m the year before as unimportant from an investment point of view; the British Gas deal came after the reporting period.

"Of more relevance is an assessment of the technology's capacity to meet commercial performance and price targets, and in these respects we remain positive about Ceres," say watchers at KBC Peel Hunt.

Legislation is also on the company's side. Power from fuel cell technology is cleaner than others, and the consumer is likely to be offered incentives to buy it, as well as the chance to sell excess power back to the grid.

Mr Bance acknowledges that the British Gas agreement is the only one the company has yet signed, and until the ink is dry on other contracts, Ceres has only a foothold in the UK market. He sees the only other risk as being "turning a small company into a global engineering giant". Time will tell if this achieved, but the group has taken its first small steps. Buy.

White Nile

Our view: Hold

Share price: 35.25p (-2.5p)

White Nile, the oil and gas exploration company, is in something of a jam. Or as its former England cricket-playing chairman, Phil Edmonds, puts it: "This has been another period of both advancement and frustration." The company operates largely in southern Sudan, and was given regional government licences to operate there. The problem is that the new unity government after the civil war is not so keen to play ball.

It is not all bad news for the firm. There are expectations that it will, in the end, have its contracts honoured, especially as the state-owned Nile Petroleum company has a share interest in the group. However, for short-term investors, or those wanting to limit their risk, there is no news of a timely resolution. "We remain frustrated by the lack of clarification being received from the authorities in southern Sudan," says Mr Edmonds.

The firm also has interests in Kenya and Ethiopia, but both are secondary concerns compared to its activities in Sudan, and both are still at the expenditure stage. The company reported losses of £799,000 last year, against £699,000 in 2006. Cautious hold for now.

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