by Nils Pratley
Here is a statistic to appal BP's shareholders: after one of the greatest bull markets in oil, BP's share price sits 30p below the average price at which the company has bought in shares over the past six years. Add it up and shareholders would be better off by £1bn if BP had distributed its surplus cash via dividends rather than by share buy-backs.
In other words, BP's cash management has been a disgrace, a judgment that may be a surprise. Its Alaskan pipeline rotted and its Texas City refinery exploded, but there remains a perception that BP is a wizard of financial engineering. The idea, however, owes everything to the brilliance of the timing of the two takeovers that elevated BP into the premier league of oil majors - Arco and Amoco were bought when the oil price was in the gutter - and not to anything BP has done recently.
In other words, BP's cash management has been a disgrace, a judgment that may be a surprise. Its Alaskan pipeline rotted and its Texas City refinery exploded, but there remains a perception that BP is a wizard of financial engineering. The idea, however, owes everything to the brilliance of the timing of the two takeovers that elevated BP into the premier league of oil majors - Arco and Amoco were bought when the oil price was in the gutter - and not to anything BP has done recently.
It doesn't stop the market dreaming that there is an easy way for BP to escape its woes. There is barely an analyst in London who doesn't rate the shares a buy, but there is more than a whiff of hope in some thinking. Sentiment could be improved, reckons Citigroup, if chief executive Lord Browne can deliver "one last ground-breaking deal or bold market message".
Well, yes, but what? For a company the size of BP, ground-breaking deals usually involve either mature assets in the US or immature ones in Russia. US assets are surely off limits while BP is the subject of so many regulatory and other inquiries. As for Russia, Putin and Gazprom provide regular reminders of the risks in doing business there; moreover, BP already has more invested there than other oil majors.
The shares stand at an 18-month low, and the dividend yield is almost 4%, which ought to mean a floor must be close. But unless the oil price reverses, it looks increasingly as if BP's recovery will have to be achieved by hard graft. That means solid operational improvements, which is why yesterday's news of more production shortfalls was taken so badly. Even with two years left at the helm, Browne is running out of time.
Well, yes, but what? For a company the size of BP, ground-breaking deals usually involve either mature assets in the US or immature ones in Russia. US assets are surely off limits while BP is the subject of so many regulatory and other inquiries. As for Russia, Putin and Gazprom provide regular reminders of the risks in doing business there; moreover, BP already has more invested there than other oil majors.
The shares stand at an 18-month low, and the dividend yield is almost 4%, which ought to mean a floor must be close. But unless the oil price reverses, it looks increasingly as if BP's recovery will have to be achieved by hard graft. That means solid operational improvements, which is why yesterday's news of more production shortfalls was taken so badly. Even with two years left at the helm, Browne is running out of time.
An M&S top?
One big investor in Marks & Spencer yesterday decided 700p was a nice level at which to offload a cool 27m shares. For those that arrived in the bad old days of 200p - even 300p or so during Stuart Rose's reign - the instinct to bank some profit is understandable.
Yet it's a brave soul who declares this to be the top for M&S. Rose teased for so long with his reluctance to use the word "recovery" that he has invited a new game. Many are asking: what other good news is he underselling?
Rose said little about gross margins, which reflect a retailer's ability to buy cheaply and efficiently. Next is doing well on this front; M&S probably is too. As for the major store refurbishment programme, M&S will be learning what works and what doesn't.
Rose's reticence may also reflect the fact that another landmark approaches - annual profit of £1bn, a feat not achieved since M&S's glory days. It may not happen in the current financial year, which runs to March, but it will be a close-run thing.
Yet it's a brave soul who declares this to be the top for M&S. Rose teased for so long with his reluctance to use the word "recovery" that he has invited a new game. Many are asking: what other good news is he underselling?
Rose said little about gross margins, which reflect a retailer's ability to buy cheaply and efficiently. Next is doing well on this front; M&S probably is too. As for the major store refurbishment programme, M&S will be learning what works and what doesn't.
Rose's reticence may also reflect the fact that another landmark approaches - annual profit of £1bn, a feat not achieved since M&S's glory days. It may not happen in the current financial year, which runs to March, but it will be a close-run thing.
Short sight over 3i
Not everybody shares the view expressed here before Christmas that 3i, the once conservative private-equity group, was taking a very odd gamble in offering almost £1bn for Countrywide.
A couple of rebellious hedge funds - one American, one French, and together owning 12% of Countrywide - think the business is worth more and plan to vote against. It looks as if the rebels will get what they want. Standard Life, owner of 3%, yesterday joined their cause while 3i, requiring 75% for victory, said it would not improve its terms.
What jewel do they all see at Countrywide? It's well managed, but it is still a chain of estate agents, for heaven's sake. Its assets walk out of the door at night, it is vulnerable to the swings of the property market and the internet, over time, will force fees downwards. Countrywide itself saw the online threat. It owns 20% of Rightmove, currently a very hot stock, but if investors want exposure to property websites they can buy shares in Rightmove directly.
All management buyouts, which is what 3i was proposing, arouse suspicion because outside shareholders think insiders know something they don't. But in Countrywide's case, there ought not to be too many surprises left after two decades as a quoted company.
The two hedge funds are apparently willing to sit tight and become long-term investors. Good luck to them, but this looks suspiciously like a piece of activist agitation in danger of going wrong - 560p is on the table; the price will be sub-450p if the bid fails.
A couple of rebellious hedge funds - one American, one French, and together owning 12% of Countrywide - think the business is worth more and plan to vote against. It looks as if the rebels will get what they want. Standard Life, owner of 3%, yesterday joined their cause while 3i, requiring 75% for victory, said it would not improve its terms.
What jewel do they all see at Countrywide? It's well managed, but it is still a chain of estate agents, for heaven's sake. Its assets walk out of the door at night, it is vulnerable to the swings of the property market and the internet, over time, will force fees downwards. Countrywide itself saw the online threat. It owns 20% of Rightmove, currently a very hot stock, but if investors want exposure to property websites they can buy shares in Rightmove directly.
All management buyouts, which is what 3i was proposing, arouse suspicion because outside shareholders think insiders know something they don't. But in Countrywide's case, there ought not to be too many surprises left after two decades as a quoted company.
The two hedge funds are apparently willing to sit tight and become long-term investors. Good luck to them, but this looks suspiciously like a piece of activist agitation in danger of going wrong - 560p is on the table; the price will be sub-450p if the bid fails.
Source: The Guardian
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