Investors Chronicle
Circle Oil hit by instability
By Matthew Allan , 11 June 2012
Circle Oil ’s impressive full-year results demonstrate the value of the group’s core producing assets in Egypt and Morocco. And while political instability in the region has been bad news for the shares, the derating looks overdone compared with estimates of fair value.
The impressive growth in the year, which beat analysts’ expectations, largely reflected higher oil and gas prices while, with several new wells having come on stream, then 2012 should see further growth in production. The company also plans to drill two exploration wells in Tunisia in the second half and management has negotiated a three-year extension to its $30m (£19m) convertible loan as well – previously due to mature in July.
That said, the group does face challenges. The Egyptian government, through its national oil company, is behind on roughly $29m of payments to Circle for production from the group’s NW Gemsa block. And while the Egyptian government has been an historically slow and irregular payer, it has been especially unreliable since the popular uprising there last year. Although it has since switched to making weekly payments – which should help alleviate payment-related fears.
Broker Investec Securities expects pre-tax profit of $14.1m for 2012, giving EPS of 2.4¢.
| CIRCLE OIL (COP) | ||||
|---|---|---|---|---|
| NET ASSET VALUE: | 33¢ | NET DEBT: | 7% | |
| ORD PRICE: | 18.5p | MARKET VALUE: | £106m | |
| TOUCH: | 18.5-19p | 12-MONTH HIGH: | 35.4p | LOW: 18.8p |
| DIVIDEND YIELD: | nil | PE RATIO: | 6 | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| £1=$1.57 | ||||
| 2007 | nil | -2.72 | -1.68 | nil |
| 2008 | nil | -10.7 | -4.60 | nil |
| 2009 | 15.1 | -13.5 | -3.66 | nil |
| 2010 | 44.4 | 10.4 | 2.19 | nil |
| 2011 | 58.0 | 25.6 | 4.55 | nil |
| % change | +31 | +146 | +108 | – |
IC VIEW:
Investec estimates that the group’s core net asset value based on its Egyptian and Moroccan assets are worth 28p a share – add in exploration prospects and that rises to 86p a share. Admittedly, there’s plenty of risk from the unstable political backdrop – but such hefty potential upside is hard to ignore. Buy.
Last IC view: Buy, 27p, 9 September 2011
visible-status-Standard story-url-Circle_Oil_Results_080612.xml
.
