Investor Chronicle write-up17 May 2013 08:20
The following write-up appeared in last weeks Investors Chronicle. It had little or no impact on SP
The 2012 full-year results for Fortune Oil (FTO) reflect a mixed operating performance for the China-focused energy investor, but the most significant strategic development is this year's sale of Fortune's Natural Gas business to China Gas Holdings (CGH).
Revenues were up by a modest 2 per cent at Fortune's Oil trading business, but the top-line at Natural Gas and Bluesky (aviation) businesses increased by 30 per cent and 23 per cent, respectively. Group operating profits rose by 4 per cent to £28.5m, although the group registered an 18 per cent fall at the operating level without the contribution of the Natural Gas segment. Shareholders had to contend with a reduced full-year dividend due to an overall fall in net profits, which were hit by a £2.26m increase in taxes and finance costs.
Subject to regulatory approval, Fortune will initially receive $170m (£112m) in cash from CGH for its Natural Gas business, with another $170m payable in either cash or shares within a year. If, as expected, Fortune opts for the latter, it will increase its overall stake in CGH to around 22 per cent. The deal with CGH will bolster Fortune's balance sheet, while expanding market access for its existing Natural Gas business to over 200 cities across China.
Oriel Securities estimates that Fortune is trading at a 10 per cent discount to net cash (post completion of the GCH deal).
IC VIEW:
The $340m consideration for the CGH deal - minus net debt - gives Fortune a value of 9p a share But the group will still accrue investment income from its CGH stake, while the remaining businesses still contributed £9m of net profits last year. Buy.