A tax dispute with the Indian government continues to weigh heavily on Cairn Energy (CNE). The Edinburgh-based oil company is still restricted from selling down its 10 per cent residual shareholding in Cairn India, valued at an estimated $1.1bn (£659m) as of 30 June. It remains unclear what figure Cairn might have to pay, if anything, with Cairn stressing it has yet to receive "a tax assessment or demand from the Indian Income Tax Department".
Nevertheless, the tax probe seems to have strained Cairn’s financial power. The group had an impressive $1.1bn in cash reserves at the end of last half, as well as debt facilities of $575m. But $300m is earmarked for exploration and development drilling in the second half alone, net of Norwegian tax refunds, with a further $110m of exploration drilling planned for 2015. Cairn has purposefully not committed further capital to exploration beyond that, and now plans to cut staff to reduce its central cost base.
From 2015 to 2017, Cairn must also spend $1bn putting the Catcher and Kraken projects into production. The group says it is “fully funded” for its stated programmes, but analysts at Investec reckon that "if Cairn India stays locked up, [the company] needs to sell down something or find new capital."
Broker Jefferies puts Cairn’s core net asset value at 175p, with 91p risked upside predominantly made up of the Cairn India shareholding and upcoming Senegal exploration.
CAIRN ENERGY (CNE)
|ORD PRICE:||186p||MARKET VALUE:||£1.1bn|
|TOUCH:||185-186p||12-MONTH HIGH:||290p||LOW: 150p|
|DIVIDEND YIELD:||nil||PE RATIO:||na|
|NET ASSET VALUE:||561¢*||NET CASH:||$1.1bn|
|Half-year to 30 Jun||Turnover ($m)||Pre-tax profit ($m)||Earnings per share (¢)||Dividend per share (¢)|
£1 = $1.67
*Includes intangible assets of $567m, or 98¢ a share