'Focus' comes up four times in EnQuest’s (ENQ) half-year results. In turn, the North Sea explorer-producer applies it to cost efficiencies, debt reduction and liquidity, reducing downtime, and the supply chain. To these areas, investor focus had been similarly directed; shareholders know cash generation is the only way out of a complicated debt pile.
But those investors have suddenly been given a new focus: a sharply discounted rights issue to acquire from BP (BP.) its remaining 75 per cent stake in the Magnus field. The $300m (£233m) deal will be funded by a three-for-seven rights issue, at a price of 21p a share. Chief executive Amjad Bseisu called the transaction "compelling", arguing it would add $500m to EnQuest’s net present value. But the sacrifice is a theoretical ex-rights price of 33p, 15 per cent below the undisturbed market price, and a test of equity holders’ faith.
That $500m figure was not fully explained, although EnQuest referenced the 60m barrels of oil-equivalent it gets with the deal, whose ultimate purpose is to provide cash flows to accelerate net debt reduction.
Indeed, a fall in borrowings can’t come quick enough. Although the prior period was flattered by capitalised expenditure at Kraken, finance costs in the first half of 2018 more than tripled to $122m, thanks to a bump in loan and bond payments, and a $28.5m charge related to an onerous finance lease.
On average, analysts expect earnings per share of 12¢ this year, rising to 22¢ in 2019.
| ENQUEST (ENQ) | ||||
| ORD PRICE: | 33.3p | MARKET VALUE: | £394m | |
| TOUCH: | 33.2-33.3p | 12-MONTH HIGH: | 45p | LOW: 24p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 65¢* | NET DEBT: | 257% | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| 2017 | 342 | -21.3 | 2.6 | nil |
| 2018 | 551 | 19.1 | 3.8 | nil |
| % change | +61 | - | +46 | - |
| Ex-div: | na | |||
| Payment: | na | |||
| Includes intangible assets of $242m, or 20.3¢ a share £1=$1.29 | ||||
