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MIDDAY REPORT: The headline index was slightly higher in midday trade, as investors assess the implications of the US budget deal, with insurance companies in focus and ARM Holdings topping the...

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Fri, 13th December 2013 - 10:31

Court case completion sends Victoria soaring
Court case completion sends Victoria soaring
The resolution of LSE:VOG:Victoria Oil & Gas subsidiary Rodeo Development's arbitration with RSM sent the parent company's shares nearly 18% higher on Friday morning.
Through proceedings started in October 2012, RSM contended it still held a 38% share of the Logbaba field, Colorado, despite VOG serving a notice of forfeiture.
VOG had proceeded in this action following RSM's failure to pay cash calls under the terms of an operating agreement between Rodeo and the company.
The parent company contended cure period for RSM's unequivocal default should have been 15 days, but the Tribunal has determined this should have been 30 days.
This means VOG's contractual forfeiture of RSM's interest in the Logbaba field has not been upheld.
However, RSM has $4.1 million to pay promptly to honour its second cash call, or else risk a further default.
On top of this, and in accordance with the Tribunal's endorsement of Rodeo's operation of the cash call procedure, it will shortly issue a third cash call for RSM's 40% share of expenditures incurred since the second cash call in June 2011.
This will amount to approximately $20 million and if RSM does not pay it within 10 days of receipt it will once again be in default.
RSM is also required to pay all future cash calls in accordance with the terms on the agreement and Rodeo is entitled to recoup $65 million of drilling costs before RSM can claim its share of profits. 
In addition Rodeo will now be pursuing RSM for payment of $512,000 for unpaid costs it was awarded in the first arbitration, VOG said.
Kevin Foo, chairman of VOG, said: "We had a dispute with RSM and it is now resolved. The company now has a contributing partner responsible for 40% share of all costs going forward and who is obliged to pay an outstanding cash call of 
approximately $4 million. Additional cash calls of approximately $20 million are also due to be issued imminently. 
"Under agreements with RSM, Rodeo expects to recoup the majority of its $65 million capital expenditure on wells 105 and 106 before any profit distribution is due to RSM. Furthermore, VOG's subsidiary Rodeo is entitled to apply for an additional 44 square kilometres (sq km) exploration area that borders our existing 20sq km exploitation licence on three sides."

The resolution of Victoria Oil & Gas subsidiary Rodeo Development's arbitration with RSM sent the parent company's shares nearly 18% higher on Friday morning.

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Fri, 13th December 2013 - 09:50

RSA below 90p becomes "bid subject"
RSA below 90p becomes "bid subject"
Shares in LSE:RSA:RSA Insurance Group plunged 32% in early trading on Friday on the completion of its Irish reserve review which was accompanied by the stepping down of chief executive Simon Lee and another profit warning.
Yet some people saw an opportunity for a takeover in the offing.
Martin Scilcluna is to become executive chairman while the search for a new group chief executive is underway.
At the start of November, in its interim management statement, RSA warned of a potential shortfall in its Irish reserves due to an increase in bodily injury trends across the motor market in the country.
The group said at the time: "It is too early at this stage to draw any firm conclusions or to reliably estimate the likely financial impact. Nevertheless, it is probable we will need to strengthen our Irish bodily injury reserves and this will also adversely impact the group’s 2013 performance."
On Friday RSA said an additional £130 million would be pumped into the division to strengthen its reserves and ensure the solvency ratio of RSA Insurance Ireland is maintained above 200%.
This is in addition to £70 million already announced on 8 November relating to claims and finance issues in Ireland, an announcement which saw the division’s chief executive Philip Smith suspended alongside two other senior executives. 
http://www.iii.co.uk/articles/128205/rsas-woes-will-plague-it-new-year
Further adverse weather experienced in the UK and Scandinavia has also led to net claims of £25 million for the group in December.
All of these factors together have led the group to reduce its anticipated 2013 earnings, which are now expected to reach mid-single digit return on equity.
"The impact of events in the last quarter will need to be taken into consideration when the board determines the 2013 final dividend recommendation in February 2014," RSA added.
The group reduced its dividend by almost a third at the start of 2013.
Scicluna, RSA chairman, said: "Lee felt it was in the best interests of the group that he step down to enable a change in leadership. He has offered to help in any way he can to ensure a smooth transition.
"The significant reserve strengthening in Ireland represents a further negative event and places additional strain on the capital metrics of the group. The impact of this reserve strengthening, alongside the extreme weather in 2013 and the effect of financial irregularities in Ireland will be taken into consideration in the board’s dividend decision in February," he added.
A full review of the group’s businesses has been initiated with the objectives of improving the capital strength of the company, optimising the business portfolio and delivering a sustainable dividend in the future.
Scicluna said investors would be updated on the progress of the review at the full year results presentation.
Analyst view
Panmure Gordon’s Barrie Cornes, said: "Profit warnings tend to come in threes and that’s proved to be the case for RSA. CEO Simon Lee has been replaced and the 2013 final dividend flagged as being under threat. We cut our 2013 earnings by 35%, dividend by 30% and target price to 90p per share (98p previously).
"However, should the shares trade below 90p per share we think that there is a real possibility that RSA could be the subject of a bid approach given the quality of some of its businesses."
Investor view
Over on the Interactive Investor discussion board, ‘Yorkists’ said: "You cannot touch this company at present because you have no way to value it, but surely it will be sold/absorbed into a company that not so long ago it had aspirations to buy?"
Meanwhile ‘Marshy_s’ obviously thought there was opportunity ahead: "Was set to buy at shy of £1 yesterday but got stuck in a meeting all day. Beaming from ear to ear, thought the Irish debacle was priced in."
‘Gamesinvestor’ was also puzzling whether RSA was an opportunity or ‘uninvestable’: "Well it looks like they are taking action – the severity is still not yet fully known because the review is ongoing and the impact on the dividend is not yet decided. Is this a punt or a one-time opportunity to buy on the cheap."
Some obviously agreed, by 9:00am shares had recovered to sit 15.6% down at 84p. 

Shares in RSA Insurance Group plunged 18.5% in early trading on Friday on the completion of its Irish reserve review.

Business News

Three high-yielding funds trading at a discount
Fri, 13th December 2013 - 12:29
Three high-yielding funds trading at a discount
In a world where yield is highly sought after, high-yielding investment trusts are most likely to trade around their net asset value, or on a premium.
But there is still the occasional bargain when it comes to buying income, and Oriel Securities has highlighted three funds with high yields currently holding onto relatively wide discounts.
LSE:NBPE:NB Private Equity
This investment trust has an estimated discount of 28% and is yielding 4.5%. Oriel Securities analysts Iain Scouller and Alex Cass, said the trust is making good progress with its higher yield strategy by increasing exposure to debt investments. 
Historically the fund has invested in funds but it has started holding more in direct investments in both private equity and private debt.
"As a result the annual dividend of $0.41 (4.5% yield) is expected by management to be fully covered by revenue earnings per share per early 2014," Scouller and Cass added.
The discount, which is substantially wider than the majority of private equity funds is viewed as a significant anomaly and has scope for re-rating as investor demand for specialist funds increases.
NBPE is managed by Neuberger Berman's alternatives team, which manages $19 billion of commitments and has investments with over 200 private equity firms.
Next up, the Evy Hambro run LSE:BRWN:BlackRock World Mining is also highlighted by Oriel following a tough couple of years and a particularly "traumatic" first half of 2013 in the mining sector.
"BlackRock World Mining has seen its NAV fall 275 over the past year on a total return basis, and is currently on a 10% discount to cum income NAV. As a result of the falling price and a higher dividend policy, the yield has doubled from 2.4% a year ago to 4.8% today. The increased dividend payment has been boosted by investments in two mining royalties, which provide the fund with a direct share in profits from two mines. We would expect the trust to continue 
with its higher dividend policy on the assumption mining companies do not cut dividends," Scouller and Cass say.
The BlackRock World Mining Trust, has significantly outperformed the sector (136%) and its benchmark (123%), the S&P Global Natural Resources, over five years, with returns of 218.81%. Over three years it has lagged, however, returning 
60.75% compared with 86.81% from the benchmark and 65.5% from the sector.
Finally, the LSE:ECWO:Ecofin Water & Power Opportunities trust has been pointed out by Oriel, which has an estimated discount of 22% and a yield of 5.2%.
"This fund invests in listed utilities, infrastructure and energy stocks. Its largest investment Lonestar Resources (18% of NAV) was a company established by ECWO specifically to exploit US shale gas resources. The capital structure should become simpler and leverage lower in the next two to three years and we think the fund should see a significant narrowing of the discount," Scouller and Cass say.
ECWO's second largest holding is National Grid, and third is General Electric. It was launched in 2002 and has returned 81% on its shares since then, substantially lower than the 110% from the MSCI World. Both its NAV and share price returns significantly lag the MSCI world over one, three and five years too.

In a world where yield is highly sought after, high-yielding investment trusts are most likely to trade around their net asset value, or on a premium.

Court case completion sends Victoria soaring
Fri, 13th December 2013 - 10:31
Court case completion sends Victoria soaring
The resolution of LSE:VOG:Victoria Oil & Gas subsidiary Rodeo Development's arbitration with RSM sent the parent company's shares nearly 18% higher on Friday morning.
Through proceedings started in October 2012, RSM contended it still held a 38% share of the Logbaba field, Colorado, despite VOG serving a notice of forfeiture.
VOG had proceeded in this action following RSM's failure to pay cash calls under the terms of an operating agreement between Rodeo and the company.
The parent company contended cure period for RSM's unequivocal default should have been 15 days, but the Tribunal has determined this should have been 30 days.
This means VOG's contractual forfeiture of RSM's interest in the Logbaba field has not been upheld.
However, RSM has $4.1 million to pay promptly to honour its second cash call, or else risk a further default.
On top of this, and in accordance with the Tribunal's endorsement of Rodeo's operation of the cash call procedure, it will shortly issue a third cash call for RSM's 40% share of expenditures incurred since the second cash call in June 2011.
This will amount to approximately $20 million and if RSM does not pay it within 10 days of receipt it will once again be in default.
RSM is also required to pay all future cash calls in accordance with the terms on the agreement and Rodeo is entitled to recoup $65 million of drilling costs before RSM can claim its share of profits. 
In addition Rodeo will now be pursuing RSM for payment of $512,000 for unpaid costs it was awarded in the first arbitration, VOG said.
Kevin Foo, chairman of VOG, said: "We had a dispute with RSM and it is now resolved. The company now has a contributing partner responsible for 40% share of all costs going forward and who is obliged to pay an outstanding cash call of 
approximately $4 million. Additional cash calls of approximately $20 million are also due to be issued imminently. 
"Under agreements with RSM, Rodeo expects to recoup the majority of its $65 million capital expenditure on wells 105 and 106 before any profit distribution is due to RSM. Furthermore, VOG's subsidiary Rodeo is entitled to apply for an additional 44 square kilometres (sq km) exploration area that borders our existing 20sq km exploitation licence on three sides."

The resolution of Victoria Oil & Gas subsidiary Rodeo Development's arbitration with RSM sent the parent company's shares nearly 18% higher on Friday morning.

RSA below 90p becomes "bid subject"
Fri, 13th December 2013 - 09:50
RSA below 90p becomes "bid subject"
Shares in LSE:RSA:RSA Insurance Group plunged 32% in early trading on Friday on the completion of its Irish reserve review which was accompanied by the stepping down of chief executive Simon Lee and another profit warning.
Yet some people saw an opportunity for a takeover in the offing.
Martin Scilcluna is to become executive chairman while the search for a new group chief executive is underway.
At the start of November, in its interim management statement, RSA warned of a potential shortfall in its Irish reserves due to an increase in bodily injury trends across the motor market in the country.
The group said at the time: "It is too early at this stage to draw any firm conclusions or to reliably estimate the likely financial impact. Nevertheless, it is probable we will need to strengthen our Irish bodily injury reserves and this will also adversely impact the group’s 2013 performance."
On Friday RSA said an additional £130 million would be pumped into the division to strengthen its reserves and ensure the solvency ratio of RSA Insurance Ireland is maintained above 200%.
This is in addition to £70 million already announced on 8 November relating to claims and finance issues in Ireland, an announcement which saw the division’s chief executive Philip Smith suspended alongside two other senior executives. 
http://www.iii.co.uk/articles/128205/rsas-woes-will-plague-it-new-year
Further adverse weather experienced in the UK and Scandinavia has also led to net claims of £25 million for the group in December.
All of these factors together have led the group to reduce its anticipated 2013 earnings, which are now expected to reach mid-single digit return on equity.
"The impact of events in the last quarter will need to be taken into consideration when the board determines the 2013 final dividend recommendation in February 2014," RSA added.
The group reduced its dividend by almost a third at the start of 2013.
Scicluna, RSA chairman, said: "Lee felt it was in the best interests of the group that he step down to enable a change in leadership. He has offered to help in any way he can to ensure a smooth transition.
"The significant reserve strengthening in Ireland represents a further negative event and places additional strain on the capital metrics of the group. The impact of this reserve strengthening, alongside the extreme weather in 2013 and the effect of financial irregularities in Ireland will be taken into consideration in the board’s dividend decision in February," he added.
A full review of the group’s businesses has been initiated with the objectives of improving the capital strength of the company, optimising the business portfolio and delivering a sustainable dividend in the future.
Scicluna said investors would be updated on the progress of the review at the full year results presentation.
Analyst view
Panmure Gordon’s Barrie Cornes, said: "Profit warnings tend to come in threes and that’s proved to be the case for RSA. CEO Simon Lee has been replaced and the 2013 final dividend flagged as being under threat. We cut our 2013 earnings by 35%, dividend by 30% and target price to 90p per share (98p previously).
"However, should the shares trade below 90p per share we think that there is a real possibility that RSA could be the subject of a bid approach given the quality of some of its businesses."
Investor view
Over on the Interactive Investor discussion board, ‘Yorkists’ said: "You cannot touch this company at present because you have no way to value it, but surely it will be sold/absorbed into a company that not so long ago it had aspirations to buy?"
Meanwhile ‘Marshy_s’ obviously thought there was opportunity ahead: "Was set to buy at shy of £1 yesterday but got stuck in a meeting all day. Beaming from ear to ear, thought the Irish debacle was priced in."
‘Gamesinvestor’ was also puzzling whether RSA was an opportunity or ‘uninvestable’: "Well it looks like they are taking action – the severity is still not yet fully known because the review is ongoing and the impact on the dividend is not yet decided. Is this a punt or a one-time opportunity to buy on the cheap."
Some obviously agreed, by 9:00am shares had recovered to sit 15.6% down at 84p. 

Shares in RSA Insurance Group plunged 18.5% in early trading on Friday on the completion of its Irish reserve review.