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Cairn Energy impairs

Half-year numbers for the North Sea independent provided several reasons for disappointment
September 11, 2018

If not concern, then investors in Cairn Energy (CNE) will likely have felt discontent on first scan of the oil and gas group’s half-year figures. As junior partner in its two cash-generating assets, Cairn’s pre-emptive guidance was left to Premier Oil and EnQuest. But production from both the Catcher and Kraken fields still managed to disappoint Cairn’s backers, who clearly expected more than a 14,400 barrels of oil equivalent per day (boepd) average.

IC TIP: Buy at 222p

Consequently, even if second-half output hits the top of a 20,500 to 22,000 boepd guidance range, then full-year average production could come at the lighter end of original forecasts. But Cairn is beholden to others on both fronts, as it is in its dispute with India’s tax authorities.

A favourable arbitration award is expected by the year-end, although the balance sheet has taken a hit already. As previously flagged, Cairn has booked a $231m (£178m) loss following the Indian tax department’s sale of its 2 per cent shareholding in Vedanta Limited, as well as an impairment on its valuation of those shares by $319m. That, together with the weak cash generation and $47m in exploration write-offs, helps to explain the unusually large statutory loss. On average, analysts expect full-year adjusted earnings per share of 17¢, rising to 27¢ in 2019.

CAIRN ENERGY (CNE)   
ORD PRICE:222pMARKET VALUE:£1.31bn
TOUCH:221.8-222.2p12-MONTH HIGH:271pLOW: 172p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:336¢*NET DEBT:2%
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
2017 (restated)10.877.712.3nil
2018182-603-86.2nil
% change+1589---
Ex-div:na   
Payment:na   
£1=$1.30. *Includes intangible assets of $771m, or 131¢ a share