US Edition Cranswick
635p -5p
Questor says BUY
The disposal unveiled yesterday is likely to reverse earnings upgrades that were made when the company announced its acquisition of Bowes on April 6 – but Questor feels it is a good deal for the future of the group.
Cranswick said it will sell its pets division to management in what is an earnings-dilutive deal. However, this transaction will cut its net debt, which is always a good thing in this environment, and means the company will be focused entirely on its core business of food production, primarily pork.
The pet division generated revenues of £40m in 2008, which was around 7pc of the group's total. The sale price is £17m on a cash and debt-free basis and Cranswick will keep a 5.5pc stake in the business.
Analysts have calculated that the disposal will dilute earnings by around 3pc, with interest savings from the deal being just under £1m, compared with £2.2m of profit that the business was expected to generate in 2009.
The net consideration for its recent purchase of Bowes of Norfolk – previously a family-owned business with operations in arable farming, pig-rearing and fresh pork processing – was £17m but this included £6m in cash on its balance sheet. This effectively meant that the purchase price was £11m, so net debt has actually fallen. These funds could also be used to make further acquisitions, as the company has considerable headroom within its banking facility.
So, the two corporate actions this month have focused the business entirely on meat production. The initial acquisition was good because Bowes' business has more than 50pc of sales in Tesco, a supermarket in which Cranswick had less of a presence compared with other producers.
The sale of the non-core businesses also looks good. It has improved the company's debt position, leaving it able to make further strategic acquisitions should opportunities arise.
The shares were first recommended on January 25 at 600p and they are now up 6pc. At this level, Questor still says buy.
Gulfsands Petroleum
198¼p +8¼p
Questor says BUY
ON April 10, Questor advised investors to take a position in Gulfsands Petroleum at 182¾p ahead of its preliminary results statement yesterday. The company posted a positive set of numbers and the shares have reacted well. They remain a buy.
The company posted a wider full-year net loss due to impairment charges and increased expenses but everything is on track at its key project in Syria. There was some disappointment in its US operations, where reserves were downgraded by 3.8m barrels of oil equivalent (boe) to 5.1m boe but these operations still have cashflow and are not the main thrust of Gulfsands' growth profile.
The company expects to unveil a resources update on its Syrian operations within the next few weeks.
Gulfsands has $36.8m (£25.3m) in cash on its balance sheet and is debt free. In the year to December 2008, the group posted a pre-tax loss of £11.6m, compared with pre-tax profits of £1.3m in the previous year.
In the most recent figures, there were £12.5m of one-off charges, with the lion's share of these coming from expenses for options granted. This was flagged at the interim stage.
With only five months of production, Syria became Gulfsands' best producing asset and the company's share averaged in excess of 5,000 barrels of oil equivalent per day (boepd) during the fourth quarter, with no significant water production or pressure depletion. The group looks set to increase Syrian output significantly for the full year. The target for Gulfsands' share of production is 8,000 boepd by the end of the year.
Gulfsands signed a memorandum of understanding in January 2005 with the Ministry of Oil in Iraq for the Maysan Gas Project near Basra. Discussions are ongoing and this offers a good future growth opportunity but Questor awaits further news on how the discussions have progressed. For now, Syria is the driver of the company's business.
Following the results, shares in Gulfsands remain a buy.
Vedanta
880p -84p
Questor says BUY
QUESTOR recommended buying shares in India-focused miner Vedanta on December 4 at 543p because of the company's cash position. The shares have risen an impressive 62pc since then but the shares are still a buy.
Brokers have started turning more positive. Barclays Capital upgraded its stance to buy last week, arguing that the market's valuation of Vedanta did not reflect its growth prospects and low risk profile. It is one of the broker's preferred mining plays.
MF Global also increased its target on the shares to £12 from £11, arguing that the company was a great play on the recovery in the zinc market. The company's recent fourth-quarter production numbers were also in line with market expectations.
The shares, which have been volatile, are trading on a prospective earnings multiple of 12.7 times and yielding 2.5pc. This means they are not as attractive a proposition for those seeking income. However, for those investing for capital gains, the shares are a buy at these levels.