Tullow Oil is feeling misunderstood. The company is generally thought of as an Africa-focused oil explorer, but it has interests elsewhere, most notably in French Guiana and in the North Sea. Production comes from one large field off Ghana, which accounts for about a third of it, and smaller ones elsewhere. The market had been worried that to bring the latter into production would require some hefty cash-raising by issuing new equity.
Worry no more, says Tullow. The money from the oil now being produced is sufficient to fund its exploration programme, which will soak up about $1bn this year, and much of that future development will be paid for by others as the company farms out stakes in those assets as they become more mature. Tullow, oddly, pays a dividend, total payment held at 12p, though this offers a negligible 1 per cent yield. The company is in the FTSE 100 index, which suggests a high hope element in the valuation. The shares, as the graph shows, were poor performers last year. Further good news flow should provide some impetus, but this is still a highly speculative stock, says The Times' Tempus (Last IC rating: Hold, 13 Feb).
Paragon Group is the second company, after the North Sea oil producer EnQuest, to announce a retail bond on the London Stock Exchange's Orb market this week, as that market celebrates its third anniversary. The seven-year retail bond is expected to raise between £50m and £100m and it offers a coupon, or initial yield, of 6 per cent, at the top end of what is available on the market.
Paragon had its own problems when the financial crisis hit, having to raise £287m in a rights issue to repay a syndicate of banks, but this had little effect on its ability to cope with its debt. The problem with such bonds is that their attractiveness is swiftly eroded when interest rates rise. The return from Paragon is undeniably attractive, but investors should ensure such instruments are not too large a proportion of their portfolio, The Times says (IC comment: 14 Feb).
Housebuilder Crest Nicholson is re-listing on the London Stock Exchange in another positive development for the house building sector. Although the shares soared on their first day of trading in the institutional - or "grey" - market, private investors will not be able to buy the shares until they start trading with a full listing on Monday. Questor remains positive on the sector as a whole, despite being nervous that the current broad-based rally could come to an end.
Long-term prospects for the whole sector remain sound as the UK is structurally short of housing and the population continues to rise. It looks like Crest's float will get off to a good start and Questor keeps a buy rating on the major players. Persimmon is particularly interesting for income seekers as it plans to return £6.20 a share in the form of special dividends over the next nine years. Questor thinks investors keen on Crest should wait and buy on any dips (IC comment: 22 Jan).
Business press headlines:
Japan remained mired in recession in the last three months of 2012 as the economy defied experts' expectations for a mild rebound, a development that could help insulate Tokyo against criticism over stimulus policies that have shaken up global currency markets. Government data indicated that Japanese gross domestic product fell 0.1 per cent between October and December, or 0.4 per cent on an annualised basis, the third contraction in as many quarters. That compared with a median forecast of 0.4 per cent annualised growth in a survey of economists by Bloomberg News. [Financial Times]
More than 3,600 retail jobs are at risk following another dark day for the high street that saw the collapse into administration of fashion chain Republic, the ousting of 325 managers at John Lewis and the closure of a further 164 Blockbuster stores. The surprise job cuts at John Lewis, one of the strongest players on the high street, came as 2,500 jobs were threatened at Republic, and 800 jobs went at Blockbuster, which is already in administration.
John Lewis has been held up by deputy prime minister Nick Clegg as a model of "responsible capitalism" for the whole economy, and its job cuts will deepen the gloom about the UK's financial trajectory. John Lewis staff, who are known as partners because they get a share of annual profits and can contribute to business decisions, were shocked by the imposition of cuts in the wake of a bumper Christmas. The job losses among the ranks of John Lewis department managers are thought to be the largest since 2009 when 700 in-store call centre employees got the chop and are a blow to John Lewis's benign image. [The Guardian]
The stranglehold of the traditional oil-producing nations over the rest of the industrialised world could be loosened over the next two decades if forecasts for the growth of shale oil are realised. PwC, the accountancy firm, calculates that shale oil production could reach up to 14 million barrels a day, ten times its present level, as more discoveries are made worldwide. That could push oil prices down by 25 per cent to 40 per cent, or by as much as $100 a barrel, and increase global GDP by between 2.3 per cent and 3.7 per cent, it believes. For Britain, PwC adds, the benefit of lower oil prices could boost growth between 2 per cent and 3.3 per cent by 2035, the equivalent of about £30 billion to £50 billion at today's values. [The Times]
Chancellor Angela Merkel has taken aim at multinational corporations that use tax rules in Europe and the US to avoid payments and said the G8 plans to fight tax havens. "It's not right that giant global companies have huge sales here [in Germany], in all of Europe, in the United States and elsewhere and then only pay taxes somewhere in a tiny tax haven," Merkel said in a speech in the northern town of Demmin. "That's why we're going to fight to finally put an end to tax havens at the G8 meeting this year in Great Britain," she said. "The whole world will have to fight for it otherwise we won't accomplish that." [The Telegraph]
David Cameron was dealt an embarrassing blow on the eve of his second visit to India yesterday after Delhi threatened to cancel a £480 million purchase of British-built helicopters over allegations that bribes were paid to win the order. The Prime Minister's first overture to the Asian economic giant was snubbed last year when Delhi chose a French jet over the Eurofighter in a £12.9 billion deal that will cement links between France and India for decades to come. And now Mr Cameron's latest attempt to drum up business for British firms from Delhi is being overshadowed by accusations that a deal the UK did win was secured through kickbacks. [The Times]
Britvic and AG Barr's £1.5bn tie-up has suffered a huge setback after the deal was referred to the Competition Commission for an in-depth investigation. Shares in Britvic dived nearly 9 per cent while AG Barr shed 7 per cent after the Office of Fair Trading warned competition would be reduced between "certain brands" of the two suppliers. The companies said the merger has lapsed as a result, even though shareholders had approved it, and Britvic's chairman, Gerald Corbett, said the deal was now "in the long grass" for at least nine months. Britvic also said its chief executive, Paul Moody, would be replaced immediately by Simon Litherland. [The Independent]
Santander's British business is under investigation for possible investment advice failures and could face a fine or licence changes that prevent it from offering such services in future, four industry sources said yesterday. The Financial Services Authority (FSA) said it had referred a major high street bank to its enforcement division, the latest clamp-down on an industry tarnished by mis-selling and interest rate-rigging scandals. [The Scotsman]
