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Press headlines & tips: Vale, Ophir Energy, Centrica

Find out which shares today's quality papers are tipping
November 15, 2013

The share price reaction on Thursday to Vale's disposal of its stake in Norsk Hydro is a warning from the markets about its overdependence on Brazil and iron ore. The world's largest exporter of that key commodity did manage to reach its third highest shipments of its history last quarter. As well, the cash cost of mining and moving ore fell to $22 a tonne from $24 in the previous three months. That is important as it has contributed to the company's savings year-to-date of $1bn. As well, for the near future China will have greater say about how the stuff is priced given growing supply.

Vale trades at seven times forward earnings, hence it could be attractive if it can manage to generate cash whether the ore price is $100/tonne or $130/tonne. Even so, watch how Vale will deal with unresolved tax liabilities on profits earned by its foreign subsidiaries. The most recent government proposal implies an overall $10bn bill with almost a third due this year, Goldman Sachs estimates, although the stock has already discounted some of that. Vale, with $7bn in net cash, has made no provisions for the liabilities so far - and it rather looks as if that is where the Norsk Hydro cash will be going, says the Financial Times' Lex column (No IC rating).

Ophir Energy's (OPHR) decision, announced on Thursday, to reduce its stake in the three blocks which it is developing off Tanzania, should not have come as a surprise. The company lacks the cash to see them through to first production. In fact, an outright disposal in due course of the remaining stakes cannot be ruled out. The funds will be directed at further developing and de-risking a field in Equatorial Guinea which is reckoned to contain 2.5trn cubic feet of gas. Ophir already has enough financing - $750m - in place for its two most promising drilling programmes next year, another block off Tanzania and one off Gabon, West Africa. The share price is comfortably above the 200p that Ophir was floated at, adjusting for the rights issue. It is well below the 460p at which those latest shares were issued. Ophir continues to offer investors a potentially rocky ride, but the lifting of any uncertainty over future financing is welcome, The Times' Tempus writes (Last IC rating: Buy, 5 Sept).

Yesterday's update from Centrica (CNA) showed doom and gloom across the board; analysts could not find a single arm of the business that was performing better than previously thought. For starters, its foray into the US has so far failed to deliver the promised returns, although the acquisition of Hess' energy marketing business should add significantly to profits next year, according to management. In the UK, meantime, British Gas Business has suffered an exodus of clients in recent years, while British Gas Residential is now facing, by the company's own admission, an unprecedented level of negative attention and scrutiny.

In the short term there may be respite if the Chancellor delivers a cut to green levies in the Autumn Statement. But with Labour proposing a price freeze, cost pressures set to push energy bills higher for the next decade and little semblance of political consensus over reconciling conflicting energy policy aims, Centrica needs more than a short-term bill cut to improve the risk profile for British Gas. Nevertheless, the possibility of a £500m share buy-back remains and the US is not the only possible driver of future growth. So the company continues to be solid - but a recovery looks some time off. Hold, says The Daily Telegraph's Questor column (Last IC rating: Buy, 31 Jul).

 

Business press headlines:

Barclays (BARC) will make 1,700 of its branch staff redundant as it scrambles to boost returns. Five per cent of employees in the 33,600-strong retail network will lose their jobs next year, staff were told last night in a conference call to the 1,577 branches. Barclays said it was making the cuts as fewer customers were visiting branches and more were doing their banking over the internet. The redundancies, which will start as voluntary but will become compulsory if insufficient staff come forward, was criticised by Unite, The Times reports.

Iran has sharply slowed down the expansion of its nuclear programme over the past three months, the international nuclear watchdog said on Thursday, providing a potential boost to ongoing nuclear talks with Tehran. The International Atomic Energy Agency said that Iran was continuing to enrich uranium which could potentially be used to build a nuclear bomb, in contravention of a series of UN resolutions, the Financial Times writes.

Moody's has cut the credit ratings of big US banks including Morgan Stanley, Goldman Sachs and JPMorgan Chase, after deciding that the federal government is less likely to bail the financial institutions out if they get into future difficulties. Goldman, Morgan Stanley and JPMorgan had the ratings on their long-term senior unsecured debt lowered one notch to Baa1, Baa2 and A3, respectively, Moody's said on Thursday. The credit ratings on the three banks' subordinated debt were also cut by one notch, the Financial Times says.

Sir Philip Green is looking at a move into the food sector for the first time with a trial of convenience stores at some of his BHS stores. The development comes as the Arcadia retail empire, which also includes Topshop, looks to return to growth after it yesterday reported a drop in annual sales growth and a worsening in recent trading due to the mild autumn weather, The Scotsman says.

Nine of the world's biggest pharmaceuticals companies have demanded an overhaul of NHS processes that they claim are damaging the "health of the British public and wealth of the British economy." In a joint letter to The Telegraph, the drugs giants, including Pfizer, Sanofi and Novartis, have warned that new and innovative medicines are being blocked from the health service by "overly complicated" approval processes and a heavy emphasis on cost control, The Daily Telegraph writes.

Home repossessions have fallen to their lowest level since records began in 2008, but experts have warned those taking advantage of cheap mortgage conditions now could find themselves in serious trouble when interest rates rise. Some 7,200 families crippled by mortgage debt ended up losing their homes between July and September, which is the lowest quarterly figure recorded by the Council of Mortgage Lenders and a 5.3 per cent drop on the previous three months, according to The Daily Mail.