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Press headlines & tips: Afren, Pearson

Find out which shares today's quality papers are tipping
January 22, 2013

In yesterday's trading statement Afren announced that revenues in 2012 are expected to be a record $1.5bn, up 151 per cent on 2011. That means that the company, which generated in excess of $1bn of free cash-flow, easily has enough to fund capital expenditure of $520m. That suggests little prospect of a further cash raising, which has held the shares back in the past. Furthermore, its forecast for an increase in production does not even include any contribution from its Kurdish assets.

As well, the company is increasingly active on the exploration front. Afren's spread of assets is an attractive one. As ever with explorers, it is hard to say how much of the unproven reserves is in the share price, but there is plenty of promise in East Africa, in particular. The shares have been a strong market since the middle of last year. Probably up with events, ahead of any favourable Kurdish news, The Times' Tempus column says (Last IC rating: Buy, 21 Aug).

"Three weeks into the year and the first of my Tempus tips stumbles," the well-known columnist writes in today's Times. Nevertheless, "Pearson is still ahead of the price when I tipped it, but a muted profits warning makes clear that the American education market is tough. I went for the shares, though, because of the prospects in emerging markets from its education business; an eventual sale of the Financial Times would provide a boost, too. The shares were notable poor performers last year. Stick in there," he goes on to say.

Pearson has spent the past four years as one of the best performing media stocks about, increasing its profits with metronomic reliability despite the headwinds facing the sector. However, the company's growth opportunities are narrowing. Meanwhile, although Pearson's emerging markets businesses are growing rapidly, they are some years yet from becoming the powerhouse the company badly needs. Furthermore, Pearson's top brass are pinning their hopes at this point on improving the company's execution and reducing costs. These sorts of changes are far easier to identify than to deliver.

As if that were not enough. Pearson has enjoyed a very stable management team for the past few years, thanks in part to the dangling carrot that they could eventually take the helm. That carrot has been yanked away, and some of those managers are leaving - as evidenced by the resignation of Rona Fairhead, Chief Executive of the FT. Pearson is still a solid and well-run company. But with clouds gathering on the horizon, other media stocks like BSkyB and ITV look more appealing, The Telegraph's Questor team says (Last IC comment: 27 Jul).

 

Business press headlines:

Health insurers and doctors in the United States are turning up their noses at AstraZeneca's much-vaunted new heart drug, according to a leading broker. Analysts at Société Générale forecast yesterday that sales of Brilinta would reach only $304 million by 2015 - barely a third of the market's consensus of $891 million.

Eventually, the broker expects the drug to reach peak sales of $735 million, well below AstraZeneca's billion-dollar aspirations. The gloomy prediction is backed by SocGen data suggesting that fewer than half of American insurers and public healthcare authorities have classified Brilinta as a "preferred" drug for people suffering heart attacks. [The Times]

The Bank of Japan has moved to open-ended monetary easing, while yielding to the government's call for a higher, harder target for inflation, in its strongest show of commitment to ending years of corrosive deflation. On Tuesday the Bank of Japan said it would aim to achieve a rate of 2 per cent inflation - up from its current goal of 1 per cent - "at the earliest possible time" by shifting to the kind of limitless stimulus embraced by the US Federal Reserve. From January next year, when its current Y101tn round of asset-purchases had been set to expire, the bank will begin buying Y13tn ($146bn) of mostly short-term government debt each month until that inflation target is met. [Financial Times]

The floor coverings retailer Carpetright has become the latest suitor to express an interest in Dreams, the troubled beds chain that is up for sale. Carpetright, whose founder and chairman is Lord Harris, has asked to see the sales memorandum on debt-laden Dreams from Ernst & Young, the accountancy firm handling the auction. Royal Bank of Scotland, the retailer's main lender, put the 270-store chain up for sale before Christmas and Ernst & Young has received more than 20 expressions of interest ahead of first-round bids in early February. Carpetright, which also sells beds, is looking at Dreams' best stores. Sources have suggested a full-blown takeover bid is unlikely. [The Independent]

Britain has overtaken France to become Germany's biggest global trade partner for the first time in the modern era, solidifying the emergence of a "special relationship" between Europe's two like-minded northern powers. Fresh data from the Bundesbank show that Anglo-German trade in goods and services soared to €153bn in the first nine months of 2012, with both exports and imports booming at double-digit rates. It is one of the fastest growing trade relationships in the developed world. France lagged behind at €150bn as trade stagnated, with the US at €149bn and China at €115bn. [The Telegraph]

Stricken retailer HMV has done a U-turn on its refusal to accept its own gift vouchers and will start accepting them again from 22 January, its administrator has announced. Accountancy firm Deloitte, which took control of retailer last week, also said that cash raised by HMV from the sale of charity releases, including the Hillsborough Justice Collective single, will be paid "in full as soon as possible". Nick Edwards, joint administrator for HMV Group, HMV Music and Fopp, said: "I am pleased to confirm that, having concluded [an] assessment [of the business], we are able to honour gift cards. "I can also confirm that all money raised by HMV for various charities will be paid in full. We recognise that both of these matters have caused concern for individuals and organisations affected and are pleased to have reached a positive outcome." [The Guardian]

An unprecedented $14trn (£8.8trn) greening of the global economy is the only way to ensure long-term sustainable growth, according to a stark warning delivered to political and business leaders as they descended on the World Economic Forum in Davos yesterday. Only a sustained and dramatic shift to infrastructure and industrial practices using low-carbon technology can save the world and its economy from devastating global warming, according to a Davos-commissioned alliance led by the former Mexican President, Felipe Calderon, in the most dramatic call so far to fight climate change on business grounds. [The Independent]

Small businesses remain trapped in a lending deep freeze even as conditions in the mortgage market show tentative signs of thawing, a Bank of England report has revealed. Business lending contracted and interest rates on new loans to small and medium-sized companies failed to budge during the three months to November, despite the introduction of the Government's Funding for Lending Scheme, the Bank's research showed. By contrast, there were early signs of easing in the mortgage market as loan approvals grew at a quicker pace in the three months to November. Rates on fixed-rate mortgages dropped in the final quarter of last year, although there was little change in floating-rate mortgages. [The Times]

Housebuilder Crest Nicholson has returned to profit and unveiled plans to float on the London Stock Exchange, more than five years after it was taken private at the height of the property boom. The move follows signs of improving conditions in the construction sector, with listed rivals Barratt and Taylor Wimpey last week predicting strong profits growth for 2012. Surrey-based Crest, which spent 39 years on the London market before being taken private by Scottish entrepreneur Sir Tom Hunter and HBOS in a £715 million deal in 2007, hopes to raise about £50m through its initial public offering (IPO), which is expected to complete next month. At least 35 per cent of its shares will be free float, or available to private investors, following the offer. [The Scotsman]