KEVIN HART, Cairn Energy’s chief financial officer, is not the first FTSE 100 finance director to jump ship at the chance of becoming chief executive of another company. Mr Hart, 37, whose formative career was spent as a banker with Deutsche Morgan Grenfell, has harboured ambitions of one day being top dog himself.
But that the chosen day should arrive yesterday, and that Mr Hart’s new employer turned out to be BowLeven, a struggling £60 million company, took observers by surprise. Quite apart from his choice of future paymaster, Cairn shareholders had the right to wonder why their finance director was jumping ship at such a crucial juncture in their company’s life.
Cairn is not a FTSE 100 stalwart; far from it. Until January 2004, when oil was discovered in Rajasthan, northwest India, Cairn was best known for Sir Bill Gammell, its then unknighted chief executive, who counted Tony Blair among his friends. But the Mangala oil discovery, and subsequent finds that have amassed 3.5 billion barrels in Rajasthan, turned Cairn into a £3 billion market darling. The discoveries came at a perfect time, coinciding with soaring oil prices and an explosion in economic growth in India, which was reliant on oil imports.
First Cairn oil is due to start flowing by 2008, although before then it has to arrange a $1 billion debt facility, win shareholder approval to spin off its Indian assets into a standalone unit, and float that unit in Bombay. In other words, another transformation awaits, and a busy time for the finance director. Comforting for Cairn shareholders, Mr Hart is not leaving until the end of the year, by which time the Bombay listing will have happened or the plan will have sufficient momentum to avoid any risk of derailment. Mr Hart is hopeful of having the debt facility in place within weeks, and continues to play off top banks jostling for roles in Cairn India’s flotation.
Given that Cairn shareholders are expecting a billion-pound cash windfall from the India flotation, anxiety over Mr Hart’s pending departure is easy to understand. But his long notice period, and the fact that Jann Brown, his proposed replacement, is a Cairn veteran, should offset the sort of jitters that prompted shareholders to sell stock in May. The shares remain well priced but also well worth holding on to. After all, oilfields in India are only going to gain in value.
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Warner Estate
WARNER Estate, the property company best known as the owner of Liverpool’s Cavern Club, has been working like a dog during the past 12 months to turn itself into a player to be reckoned with. It is still a small company, but there is nothing diminutive about its ambitions.
In the past year the company has more than doubled properties under management to £2.5 billion, assisted by the acquisition of Ashtenne, the industrial specialist. The group has pinned its expansion hopes on managing properties for third-party investors, while maintaining a £350 million portfolio of wholly owned assets.
To cope with the soaring workload, Warner has ramped up staff numbers from 71 to 187 and has opened a network of six regional offices.
The company prides itself on being prepared to get its hands dirty and manage its properties actively to make sure that they outperform the market. These skills will be critical in the year ahead, when returns in the booming commercial property market are expected to slow.
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Already it believes that there is potential for rents on its existing portfolio to rise by £30 million to £180 million once reviews are completed. Rents could rise even further with added work. Meanwhile, the company has lined up a 1.25 million sq ft development pipeline, 55 per cent of which is either under construction or has planning consent.
Development projects will be crucial to driving higher returns for property companies because they offer bigger profit margins than buying completed buildings. Warner has an additional 240 acres of development land in its portfolio, including a string of sites inherited from the Ashtenne deal.
Most of this land does not yet have planning permission, but, as building consents filter through, it will provide scope to create value. The company is also seeking to increase its exposure to the City of London property market and the Olympic zone in East London.
The shares have suffered a bumpy ride in the past two months, but at the current price look fair value at a 14 per cent discount to 2007 net asset value. Hold on.
Tribal Group
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IT IS more than 18 months since Tribal Group issued a horrible profits warning, sending its shares plummeting to an all-time low. Yet it has now delivered three six-monthly sets of figures without any big shocks to the City. Ambitious and fashionably focused on cashing in on the public sector spending boom, in theory Tribal Group should be a good bet. Its fast-growing healthcare delivery business is developing new mini-hospitals. It oversees every stage from construction and management of the buildings to hiring the doctors and nurses. Its education division runs Ofsted school inspections and its consultancy division does everything from headhunting for public sector jobs to management consultancy.
The potential for growth in many of these areas could be huge, but, despite an impressive 19 per cent rise in organic revenue growth last year, the group continues to feel high-risk. It may be tempting to take advantage of recent share price weakness and buy, but the cautious investor should await further diagnosis before parting with their cash. Avoid for now.