There’s a tale in the marketing guff of Pains Wessex that confirms why many people have, frankly, no time for boats. It is of a fellow and his nephew out in Cardigan Bay. The sea gets rough. The boat gets in trouble. The chap uses his mobile phone to dial 999. It doesn’t work. He grabs the emergency bag but finds himself in the water as the boat gets rolled over. He gets his hands on a flare and pulls the cord. Nothing. It doesn’t work. He finds another. This time a Pains Wessex flare. Whoosh. Thick orange smoke ascends. Someone tells the RNLI. The local lifeboat is launched. Two lives are saved.
There are several morals to this story, not least the tempering of expectations that mobiles might work in the middle of a storm in the Irish Sea. Another is that although you should not believe any old binnacles a company peddles you, Pains Wessex’s reputation is such that it is the world’s leading supplier of flares to leisure boats and commercial vessels.
Which may make the decision by the FTSE 250 group Chemring, a long-time specialist in these and other such pyrotechnics, to sell Pains Wessex and the rest of its marine division seem a little strange.
It is a high-margin business with operating profits of £6 million on sales of £21 million. It is being sold for £32 million in cash. Its sale will dilute group annual earnings by as much as 5 per cent.
Chemring counters that marine is an ex-growth business whose future development would need a lot of investment and management time in a group now focused on the defence sector. The buyer, the private equity-owned Drew Marine, may have got itself a bargain, but Chemring argues that it is making a £10 million profit on the transaction, which will go towards a £50 million share buyback later in the summer.
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The price of shares in Chemring has halved in less than a year. Profit warnings have been related to its decision to concentrate on the defence industry, which is reliant on the United States — which in turn is hobbled by the spectres of spending cuts and political uncertainty, until at least November’s presidential election.
Trading on less than six times this year’s earnings and yielding nearly 6 per cent indicates to some the sort of value, which, as Tempus has previously highlighted, could invite a takeover. Outside of that, there are no flares going off to suggest the share price is going to be rescued any time soon.
There is no evidence to suggest that last week’s three Budget U-turns have enticed us consume more pasties, acquire static caravans or donate more to charity. But another Osbornian volte-face earlier in the spring — relaxing petroleum taxation with enhanced new field allowances — has got North Sea explorers gushing.
In a phrase perhaps not heard since the Silver Jubilee, Steve Jenkins, the chief executive of Nautical Petroleum, exclaimed yesterday: “The North Sea is trendy.” What he means is that the tax-regime change makes development in the ageing oil and gas province commercially viable again, as most new fields are small enough to qualify for the tax breaks.
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Nautical is one of the so-called scavenger stocks, dedicated North Sea explorers picking their way round abandoned or never-developed assets on the continental shelf. Yesterday, with its partners, which include Premier Oil and Cairn Energy, it announced that it had struck oil again in the Catcher field east of Aberdeen. The oil was of a better quality than expected and potentially extends the scope of the field, already one of the most significant discoveries of the past decade.
The news sent the shares up 8¼p to 269p. Most of the small broking houses that watch Nautical reckon that with Catcher, its interests in the Kraken field off the Shetlands and £60 million of cash in hand, it should be trading at nearly double that. Investec and Canaccord reckon it’s a £6-a-share stock.
What has weighed on the share price are worries that Nautical may be sitting on some interesting prospects but will have trouble financing heavy commitments to develop them. Mr Jenkins calls those fears overdone. Supporters say the company has a good track record of raising cash when it has needed to.
If you have an appetite for the North Sea, Nautical Petroleum is speculatively interesting.
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Like the DIY project that never gets finished, those tempted into buying shares in our housebuilders since the great crash in 2008 have acquired several bruises and scratches without much else to show for it.
Liberum Capital, however, is one City broking house that thinks it may be time to raise the roof. You can be a bear on house prices yet still be a bull on the housebuilders, as higher-margin newbuild is likely to outperform existing home valuations, the broker says. It argues that the Government’s NewBuy scheme to make 95 per cent mortgages available should begin to gain traction. And the shares of the housebuilders have been oversold by 12 per cent in the recent stockmarket falls.
Liberum’s preferred stocks are Barratt, with its good exposure to the South East and track record in actually selling homes; and Berkeley, whose strong performance in the buoyant London market makes its sharp share price fall all the more inexplicable. Taylor Wimpey is upgraded because the broker thinks it has most to gain from NewBuy.
We are not so sure. The country remains stricken by inflation and recession. Even if mortgage availability and rates were better — which they are not — most potential homebuyers are very aware that their spending capability, or, indeed, their appetite, has diminished. Jumping back into the housebuilding sector now may be yet another of those hammer-on-thumb moments.
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As has been noted above, slate grey is often the chosen hue of Welsh skies. But IQE, the Principality’s flagbearer in the British technology sector, has brought some sunshine to the valleys with a 12 per cent share-price surge after the acquisition of $27 million of assets from the Nasdaq-listed RFMD. That deal boosts its semi-conductor manufacturing capacity, meaning that IQE can make more wafers for smartphones and solar panels. Tasty.
Gilts: UK Government bonds retreated amid hopes that Spain’s stricken banks would be saved. The September gilt future settled 130 ticks lower at 119.68. Losses had been steeper still before the European Central Bank placed the onus firmly on individual countries to solve the region’s debt crisis. The yield on ten-year gilts jumped 11 basis points to 1.64 per cent.
Bet of the day: Spread-betters waited for the European Central Bank to make no fresh commitments to prop up the eurozone’s faltering banks and ailing economies before teeing up orders to sell the euro. The single currency gave back most of its early gains amid disappointment that the ECB had not been more decisive. GFT Markets offered $1.2494 to $1.2495 to the euro.
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Deal of the day: Forte Energy, the Australia-based, AIM-listed miner with uranium deposits in Guinea and Mauritania, is raising £2.5 million by selling new shares at 1¼p each. Off another 10.3 per cent at 1¼p yesterday, they have lost more than two thirds of their value since the start of May. Cynics looked forward to a decent bounce once funding was in place.