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Doubts linger for Cairn

RESULTS: Cairn Energy's half-year report failed to galvanise investors and the risk remains to the downside
August 28, 2012

Cairn Energy's latest half-year results failed to convince investors that the oil and gas exploration group has adequately addressed the shortage of producing assets within its portfolio. In particular, the acquisitions of both Agora Oil and Gas and Nautical Petroleum have yet to alleviate investor anxieties over the decline in value of its residual holding in Cairn India and development costs linked to its Greenland assets.

IC TIP: Sell at 286p

Following the $560m (£353) net consideration paid for Nautical Petroleum post the half year-end and $371m received from the sale a 3.5 per cent holding in Cairn India in July, guidance is for net cash to be at least $500m at the end of 2012. This leaves the group with a residual 18.3 per cent holding in Cairn India currently worth $2.2bn, equating to 231p a share, as well as forecast year-end net cash of 46p a share. Combined, this accounts for almost all of Cairn Energy's current share price. More than anything, though, it reflects continued reservations over capital costs for Cairn's Greenland assets, which consumed $1bn last year to no avail.

In the latest six-month period and with no oil sales to report, Cairn lost $50m (£31.6m) at the operating level, but an $87m tax credit kept earnings in the black. The group also announced details of a farm-in with Serica Energy in offshore Morocco.

CAIRN ENERGY (CNE)
ORD PRICE:286pMARKET VALUE:£1.7bn
TOUCH:286-286p12-MONTH HIGH:383pLow: 245p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:580¢*NET CASH:$927m

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (p)
2011nil-141-11.4nil
2012nil-505.2nil
% change----

£1 = $1.58

*Includes intangible assets of $644m, or 107¢ a share