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Press headlines & tips: Essar Energy, HICL Infrastructure Company, G4S

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February 12, 2013

India-focused oil refiner and power generator Essar Energy's third-quarter trading update on Monday showed encouraging signs across its portfolio. The FTSE 250 energy group owns the giant Vadinar refinery in Gujarat and a string of power plants across India in which it intends to burn coal from its own mines, capitalising on India's burgeoning energy demand. Having invested in major upgrades and construction projects, Essar also has a hefty debt pile; its financing cost for the half-year to last September rose to $400m (£255m). Furthermore, anyone who bought into Essar when it floated in the UK at 420p in 2010 will need no reminder of the risks of operating in India; setbacks at Mahan and a tax ruling against it helped wipe 75 per cent off its value within the first two years.

Nevertheless, there is further upside if a debt refinancing and power projects proceed as well as hoped; and the average target price on the stock for nine analysts monitored by Bloomberg is 201p. Even so, after the recent sharp rally Questor remains concerned about valuations in general; it is therefore especially reticent about a company with as much short-term risk to execution as Essar. Avoid, The Telegraph's Questor says (Last IC rating: Hold, 27 Nov).

With a market capitalisation of more than £1.2bn, HICL Infrastructure Company is the biggest infrastructure fund in Europe concentrating on social investments such as schools and transport. But it is not an easy company to understand. HICL specialises in investments in assets that have an assured income stream stretching out for decades. Its business model is to go out regularly into the market and issue fresh shares to fund the pipeline of investments it can detect. A further fundraising is in train, with details expected in a couple of weeks.

It has bolstered the forthcoming issue by giving out a new net asset value figure, as at the end of December, of 115.8p, excluding any dividend income. The share price, 123.5p last night, therefore trades at a 5 per cent premium to this, about the middle of the normal trading range. Worth holding for that safe yield, then, if that is what you want from your investment, Tempus in The Times says (Last IC rating: Buy, 8 Mar).

Some time within the next couple of weeks or so, Locog will hand down the fine for its failings in last year's Olympic Games and G4S finally can put the sorry saga behind it. The company has already put aside £50m as an exceptional item to cover the fine and other expenses. A note from Panmure Gordon, though raising its target price for the shares, speculates that this may not be enough to cover all the damage, with a figure of £60m to £70m mentioned. "We shall see," says The Times' Tempus.

G4S has not updated the market since the autumn, but a couple of weeks ago Babcock International came out with a cheerful trading statement that suggested plenty of outsourcing opportunities out there. Its results on March 13th should show that G4S continues to struggle on the Continent. Yet the company is still on track to generate half of its revenues from emerging markets by 2019. The shares, after a difficult 2012, have outperformed the market so far this year; further advances may be limited, therefore, even if at last night's 280.25p they sell on a relatively modest 11.4 times' this year's earnings, Tempus concludes (Last IC rating: Hold, 28 Aug).

 

Business press headlines:

Cyprus is likely to receive its long-awaited eurozone bailout by the end of March, according to the European Central Bank executive Jörg Asmussen, pictured. Cyprus is hoping to secure a €17.5bn (£14.8bn) bailout from other European member states, but some German politicians have been hesitant in approving the payment.

"There must be no doubt about this: if Cyprus gets no external help, it will slide into default," said Mr Asmussen in an interview with Handelsblatt newspaper. He added, however, that the payment could not be a "one-way street", and the Nicosia government would be required to fulfil tough conditions by scaling down its financial sector and introducing more banking transparency. [The Independent]

The chief executive of Royal Bank of Scotland mounted a dogged defence of his bonus last night, despite mounting criticism over the failures that allowed Libor-rigging to continue for years after he arrived. Stephen Hester insisted that he deserved the £780,000 payout from his long-term incentive package because of the "huge things" he had achieved since arriving at the taxpayer-owned bank in 2008. Sir Philip Hampton, the bank's chairman, went farther, suggesting that Mr Hester was underpaid by comparison with other global top bankers and adding that the bonus, which comes on top of a £1.1 million salary and £400,000 pension contribution, was "modest". [The Times]

Heathrow is at loggerheads with the major airlines after proposing to increase landing charges almost 6 per cent above the rate of inflation from next year. British Airways, Lufthansa and Virgin Atlantic attacked the price increases, which could see landing costs jump from £19.33 per passenger at present to £27.30 by 2018. The changes were announced as part of Heathrow's business plan for the five-year period between 2014 and 2019. [The Telegraph]

A stand-off between the Treasury and EDF Energy is threatening to scupper the French state-controlled company's £14 billion nuclear reactor project in Somerset and to wreck Britain's new-build programme. Talks have broken down over the level of subsidy - provided by levies on consumers' energy bills - awarded to EDF Energy in return for building Britain's first reactors for decades. It comes a week after Centrica, the owner of British Gas, decided to pull out of the project, claiming that ballooning costs and lengthening delays made it too risky. [The Times]

The number of property sales rose in January for the fourth straight month, surveyors said, prompting a claim that "the very worst may be over" for the UK housing market. However, the Royal Institution of Chartered Surveyors (Rics) warned that any recovery in the market remains very fragile, with prices continuing to fall in most of the country. It said that 4 per cent more surveyors reported price falls than price rises in January, compared with 1 per cent the month before. The biggest falls were in Yorkshire and the West Midlands. The figures tie in with January's house price report by Halifax, which said prices fell by 0.2 per cent over the month. [The Guardian]

The yen plunged against the euro and the dollar on Monday after markets interpreted comments by international policy makers as a green light to sell the Japanese currency. The dollar jumped to a high of Y94.42 after Lael Brainard, the top US Treasury official for international affairs, restated US support for monetary stimulus in Japan but warned against competitive devaluation. The sudden movements highlight a volatile atmosphere in foreign exchange markets leading up to a summit of G20 finance ministers, which will be held at the end of the week amid fears of a new round of "currency wars". "We support the effort to reinvigorate growth and to end deflation in Japan," said Ms Brainard. [Financial Times]

The software company Autonomy is to be investigated by the UK's accountancy watchdog over its financial statements in the lead-up to its $11.1bn (£7.1bn) takeover by US giant Hewlett-Packard in 2011. HP wrote off $8.8bn of the purchase price paid for Autonomy last November, of which it said $5bn was "linked to serious accounting improprieties, misrepresentation and disclosure failures". The Financial Reporting Council (FRC) is investigating Autonomy's financial reports between January 2009 and June 2011 - audited by Deloitte - after consulting the Institute of Chartered Accountants. The US Department of Justice is already investigating the accounting claims and HP has also asked the Serious Fraud Office to look into the allegations. [The Independent]