While the decrease in Petrofac's - the oil engineering and services group - cash on hand evident in yesterday's trading update was startling, upon closer inspection it is not as alarming as it seems. That is because one needs to understand that the company's business model involves the payment up front of huge sums from customers to allow the company to get on with the work, which then get used up. The advancement of several big projects, mainly the South Yoloten gasfield in Turkmenistan, accounted for $800m of that decrease. Similarly, the company's Integrated Energy Services (IES) division put another $700m to work in different projects, including one in Mexico.
Locking up such large sums of cash carries risks, not least regarding political ones in some countries in which it operates. There have also been delays in winning contracts in areas such as North Africa and the Middle East because of those political uncertainties. Even so, the backlog of orders was up by $800m to a record $11.6bn. "Petrofac shares, up 24 per cent since June, lost 19p to £16.61 yesterday; they sell on 13 times next year's earnings, but I am not sure I would want to go short even at this level," says The Times' Tempus column (Last IC rating: Hold, 13 Aug).
Unlocking shareholder value through demergers is a difficult trick to pull off.
Thus, for example, the break-up of the old Cable & Wireless empire in 2010 is generally seen as a disaster for investors. Cookson, which today will begin trading as two separate companies - Vesuvius and Alent - had been trading at a significant "conglomerate discount", regarded as two different businesses that ended up with a rating that did a disservice to both. The belief is that each of the two managements should be free to focus on their own businesses, while the market will have a clearer view of each one's individual worth. Time will tell.
However, since the demerger was first contemplated in May, Cookson has issued a profits warning, in October. The company that Vesuvius is most seen as resembling, Morgan Crucible, has issued its own profits warning. As well. the clearest comparator to Alent, AZ Electronic Materials, has also seen slowing growth. In Tempus' view, Alent looks the better bet, not least because it is heading into higher-margin profits and out of commoditised solder, where sales have been falling for years, while Vesuvius' performance will be more pedestrian. But he am not sure that either is going too far in the near future (Last IC rating on Cookson: Buy, 25 Jul).
On Monday, APR Energy said it had signed a new 200 megawatt contract in Uruguay, running until mid 2014. That is a significant contract, as typical coal power station produces around 600 to 700 megawatts. It brought APR's total new contract wins this year to 569 megawatts and contract renewals to 724 megawatts. In the opinion of The Telegraph's Questor team the above shows that the investment case for temporary power providers is intact and sound. The world is short of power and demand is growing rapidly in emerging economies, even if it is true that contracts in this business will be lumpy - as its rival Aggreko has also found out. Although volatility in earnings will remain, the long-term prospects are sound. Even so, Questor was disappointed with the accounting issues earlier in the year. For that reason it maintains its hold rating but sees the scale of the opportunity if management gets it right (Last IC rating: Hold, 30 Aug).
Business press headlines:
Britain's biggest carmaker has given the British automotive industry a big boost by announcing it is to start building premium-priced cars under its upmarket Infiniti brand in Sunderland. The move by Nissan, which is already bringing Britain its first mass-produced all-electric car, the Leaf, will create a further 1,000 jobs and secure the Japanese company's position as one of Britain's most important manufacturers. [The Times]
Swiss bank UBS was hit with a $1.5bn bill and admitted to fraud today in order to settle charges of manipulating global benchmark interest rates. The penalty agreed with US, UK and Swiss regulators is more than three times the $450 million fine levied on Barclays in June for rigging the Libor benchmark rate used to price financial contracts around the globe. It is the second-largest fine paid by a bank and comes a week after HSBC agreed to pay the biggest ever penalty - $1.92 billion - to settle a probe in the United States into laundering money for drug cartels. [The Independent]
Former FSA chief Hector Sants has secured total remuneration worth as much as £3m as part of his move to Barclays next month, according to people familiar with the deal. That would make him one of the 10 highest paid executives at Barclays. [Financial Times]
Royal Bank of Scotland and its NatWest offshoot is paying out £10 million in refunds to 300,000 customers whose money it pocketed when they forgot to take their cash after making withdrawals. Unlike other banks, which have a policy of automatically crediting people's accounts when they leave money behind at cash machines, state-owned RBS until recently diverted the money into its own "reserves" account and only repaid it if a customer complained. [The Times]
Cerberus Capital Management announced it was selling the American gun company which it helped to create amid a strong investor backlash against firearms firms. The private equity giant said it would "immediately engage in a formal process" to sell Freedom Group, one of America's biggest firearms firms and the manufacturer of the Bushmaster AR-15 semi-automatic rifle used in the Sandy Hook massacre on Friday. Cerberus made it clear it was "not our role to take positions, or attempt to shape or influence the gun control policy debate". But in its statement the investment firm said the "Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level." [The Telegraph]
The business secretary, Vince Cable, has ordered an inquiry into the collapse of high street electricals chain Comet after the government was left with a £50m bill in unpaid taxes and redundancy costs. The Department for Business, Innovation and Skills (BIS) confirmed that the Insolvency Service had begun a "fact-finding" investigation into the high street chain's failure: "The purpose of the inquiry is to investigate the circumstances surrounding its insolvency and establish whether further action is required," said a spokeswoman. [The Guardian]
