The Investment Column: Investors should steer clear of IVA provider Accuma

Oilexco; African Diamonds
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The Independent Online

Our view: Sell

Share price: 14p (-2p)

It is just as well that indebtedness is no longer a criminal offence in the United Kingdom. If it were, the prisons across the land would be a lot fuller than they already are.

The country has relied, in recent years, on the plethora of cheap money allowing everyone to buy on credit. It is little wonder that some get into trouble. But the problem now is that those who say they can help are having trouble of their own.

Accuma, a group that repackages debt in various ways, including through Individual Voluntary Agreements (IVA), has endured a miserable year after feeling the squeeze from banks no longer willing, and in some cases able, to lend money.

Its chief executive Charles Howson blames the acquisition of a loan brokerage in 2006, which after returning a profit of £1.7m for the year to July 2007, made a loss of £375,000 in the second half of last year.

He also points to the wider trouble in the IVA market. He argues that banks have fallen out of love with them because IVAs force them to write off the entire debt, even though in practice the banks tend to recover more of the original debt than through other systems. The rise in bankruptcy will harm the banks even more, argues Mr Howson.

The group's figures were, "dreadfully disappointing," by Mr Howson's own admission. The only part of the business that turned a profit was its Informal Debt Management arm, which allows customers to cut monthly payments and pay off several creditors on a pro-rata basis.

The company argues that after a period of instability, it is on the way to recovery and stresses the group would listen to offers for its IVA business. Investors may prefer to wait a little longer. Sell.


Our view: Buy

Share price: 633p (-63p)

According to Art Millholland, the chief executive of production and exploration group Oilexco, the UK churns out more barrels of the black stuff each year than the whole of Nigeria.

And with the price of oil resolutely staying above $100 a barrel, this is particularly good news for the company, which operates exclusively in the North Sea and is getting very excited about a field it operates there, known as Huntington.

"We estimate that Oilexco is targeting resources in the Huntington area of up to 500 [million barrels of oil]. Whilst still at an early stage, drilling results so far suggest that the Huntington field could be the largest UK discovery for almost 10 years," analysts at Credit Suisse said.

Mr Millholland is refusing to get that excited, saying he does not know how much oil the site will yield. But he does say the firm is now set for a growth phase after posting 2007 net profits of $76.3m (£38.4m), up from a loss of $14m the year before.

There are a number of risks that investors should be aware of. The group has no hedges in place against a fall in the price of oil, except to cover bank facilities, and further falls in the value of the dollar versus sterling will only lead to a dent in profitability.

But Mr Millholland has little worry about all that. "I don't see a price collapse," he said. Rather, it is the credit crunch that keeps him awake at night. He argues that it is not getting access to capital that he views as a problem, but how much his firm will have to pay for it as investment banks ratchet up the cost of borrowing.

Merrill Lynch has few worries for the group and the advice to clients is to buy the stock. Analysts at the bank also reckon that one of the bigger boys in the oil industry will bid for the group. "We continue to see a 2009/2010 corporate sale as highly likely," they say. Mr Millholland, unsurprisingly, claims to know nothing about it. Buy.

African Diamonds

Our view: Hold for now

Share price: 78p (+1p)

Diamonds, so they say, are a girl's best friend, and not just in Europe and the United States. Increasingly, the betrothed of China and India are showing off engagement rings, to the extent that, in spite of the credit crisis, the diamond market is staying buoyant.

That is the view of John Teeling, the chairman of African Diamonds, which mines its rocks in Botswana – "the Switzerland of Africa", he says. The company is just "weeks away" from securing licences from the Bots-wana government to mine for diamonds, which will hit the market in 2009. If the permits are forthcoming – and Mr Teeling reckons it is a matter of dotting Is and crossing Ts – the company could meet plans to be one of the five most profitable hard rock kimberlite miners in the world. That may be ambitious, especially for a group that posted a pre-tax loss of £200,000 yesterday, compared with £180,000 in 2006.

On the other hand, the company benefits from joint ventures in Botswana with De Beers, which helps it to secure financing and gives it more clout in negotiations.

There is always the danger that the Botswana government might have a change of heart, which would leave the group in a pickle. And that is perhaps why Mr Teeling cautions against rushing headlong into African Diamonds, suggesting the firm is a better long-term punt for buyers. Hold for now.