Best of the boards: Afren, Tesco and Thorntons

Afren's investors will be having a nice Christmas this year as preliminary M&A noise supported its share price after a challenging six months; unfortunately for Tesco and Thorntons it wasn't good news all round.

The Financial Reporting Council said it is investigating three years' worth of Tesco's accounts and Thorntons warned that problems at its warehouse and lower sales will put pressure on full-year profits, which will come in under guidance.

We take a look at how users reacted to the news in the last best of the boards of the year.

Afren

What happened: After a challenging six months, it seems that low oil prices have come as a blessing for exploration and production company Afren. London and Nigeria-listed SEPLAT (SEPL) has taken advantage of the weaker market by putting a preliminary offer for Afren on the table.

Finding oil in two holes onshore Madagascar and a heap of speculation has helped support a rebound after its shares hit a five-year low last week. Afren's market value slid by almost 80% after it lost three of its management due to illegal payments and had to temporarily halt operations in the Middle East. But today's news pushed its price up another 6% to over 50p.

Noting that the offer was "highly preliminary", Afren said there is no certainty an offer will be made, or what the terms to this offer would be.

Industry expert Malcolm Graham Wood reckons there is much more interest to come, with a bidding war about to commence.

What users said: "This is going to get very interesting. I thought the BoD's were being a tad too quiet on the recruitment front. M&A is alive and kicking." User 'hub' wondered: "Merger? Combination? Or complete buyout?"

"I am intrigued by the market reaction to the RNS," said 'AdeMcG' on the Interactive Investor discussion board. "Looks like the volume on Friday was 'smart money' entering, but today [Monday] not a huge amount has happened, all retail today perhaps? Time to make a decision. I think I will watch for now."

'Balone' replied: "Hard to say at this point. Volume could just have easily been stake-building and that's what prompted today's RNS, i.e. the enquiry referred to and the simultaneous very obvious high volume.

"Afren is cheap at these levels regardless and even more so if you take into account they've hedged the majority of their oil. Whichever way you look at it, this should flush out any bidders if they are lurking."

Tesco

What happened: As we predicted earlier this month, Tesco is not out of the woods after a series of profit warnings, an accountancy scandal and declining market share has almost halved its market value this year. Now, the Financial Reporting Council (FRC) has announced that it is investigating the preparation of three years' worth of Tesco's accounts.

The accountancy regulator said it is looking at the preparation, approval and audit of Tesco's financial statements for the financial years ended 25 February 2012, 23 February 2013 and 22 February 2014. The FRC is also looking at the interim results for the 26 weeks ended 23 August 2014 which unearthed a £263 million black-hole in the accounts. PricewaterhouseCoopers was the supermarket's auditors.

"We note the Financial Reporting Council is launching an investigation into individuals and a Member firm in relation to the preparation, approval and audit of our accounts for the last three years. We will provide support to the FRC's investigation," said a spokesperson for Tesco, which has already drafted in Deloitte to go through the books. A Serious Fraud Office (SFO) investigation into accounting practices is ongoing.

What users said: On the Interactive Investor discussion board, 'Jansal' said: "If this probe is into PWC surely this is only just as they would obviously have played a large role in the overstatement. To me if this is the case it is only right that they have to be seen to take some responsibility"

Some users spoke about accountancy rules: "End of year accounting is a game with very few rules," said 'nutkin'. "Payments may easily be brought forward or pushed back to suit short term needs. The auditors are paid by the client and therefore will aim to please and keep the account. In the main this year's figures can only be improved at the expense of next years or vice versa. It is all a matter of timing.

"It is hard to see where fraud comes in unless some deal or other is affected - perhaps the CEOs bonus? Possibly a credit assessment or brokers report. If there is M&A activity then due diligence will look at several years and quickly assess the situation. These accounting loopholes affect every company and many will be looking anxiously over their shoulders.

"However tighter rules on when a payment is shown on the books would certainly help. Date of invoice, for example, date of contractual obligation or date of receipt of funds."

'Thunderbird6' added: "Matching principle should apply - income recognised in period in which it accrues (earned i.e. could be several years). Invoice date and date of receipt irrelevant. Similarly with expenses, also consistency."

Thorntons

What happened: With poor sales and problems in the warehouse hitting Thorntons' first-half trading, the chocolate company warned that its full-year profits aren't going to meet expectations. In what should be an optimum trading period, the news left a bitter taste in investors' mouths and its share price lost a quarter of its value in early trading on Tuesday..

Significantly lower orders from grocers have put pressure on the commercial channel within its fast-moving consumer goods (FMCG) division, offsetting any progress made in the convenience and high street sectors. Profit is now expected to be lower than the £7.5 million generated last year, thanks also to teething problems in its warehouse. The centre is now working normally.

"While there has been an overall decline, the performance in the grocers has been mixed, with good growth in several of our major partners yet significant volume decline in some others, where prior year sales of high-volume lines have not been repeated," Thorntons said in a statement.

More detailed information will be given in a trading update next month and although Investec Securities has put its target price and recommendation under review until then, it doesn't reckon any debt issues will crop up. The broker previously had a 'buy' recommendation with a 168p target price.

What users said: "Not what you want to hear at Christmas," said 'idontwanttolose' on the Interactive Investor discussion board.

"Normalised EPS were 9.35p last year and 5.23p the year before," said 'janebolacha'. "Current year earnings are now to be lower than last year. Assuming they turn out to be mid-way between these two figures would give about 7.3p.

"Margins are likely to be squeezed terribly by the big retailers, themselves in difficulty. The move into FMCG is now showing its downside ("swim with the sharks", etc). For me, a PER of below 10 would be needed as an entry point, given this RNS and the sector uncertainty. Therefore, a share price of below 70p."

But 'thepieman' replied: "For a company that still has lots of growth potential, has showed significant growth up till recently - and a company that is probably still fine tuning its own business model (from the sounds of it) then PER <10 seems far too cheap.

"Maybe in the old days, when people could get over a 5% return on interest from a bank, then possibly, but not today. To invest in a company that makes good money, has good growth potential - and is very much likely to benefit from future cost savings (Oil price drop will be a big benefit) - than I would think the current 90p is a good entry price, and if holding, I would certainly not be panicking.

"Seems very likely, that the supermarkets are playing games with their inventories/ordering/payments etc. A strange climate for supermarkets, and this is affecting Thorntons - but surely, will not be affecting the long term development of the Thorntons business."

And 'TX2' thought it would be interesting to see where the decline in sales has come from and thought it may be a sign of things to come.

"I wonder if this is an indication that the big supermarkets are going to have a poor Christmas compared to previous, whereas smaller speciality chains will manage to do OK. Not too sure whether this will apply to larger ones like Next. Chocs possible less at risk from move to online."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.