Vedanta Resources (LSE: VED) is topping the FTSE 100 leaderboard today. The company’s shares had jumped by 25% at time of writing, following a capital markets day for analysts and investors held by the company in London.
Plans for growth
The company used the capital markets day to lay out its plans for growth and debt reduction, which seems to have reignited interest in the company’s shares. Indeed, debt and Vedanta’s lack of free cash flow had been a concern for the company’s investors for some time. However, it now looks as if the company has put in place a plan to bolster its balance sheet, increase cash flow and reduce costs.
Vedanta’s management has reduced its capital expenditure plans for 2016 to $1bn from the previously expected $2bn. 2015’s budget has also been reduced to $1.5bn from $1.9bn previously.
Management explained that: “The reduction in capital expenditure combined with cost reductions reflects the group’s target of achieving gearing of 25 per cent in the medium term and maintaining a progressive dividend policy.”
City analysts have long been worried about Vedanta’s debt and these concerns have weighed on the company’s share price for some time. The group’s gearing ratio stood at around 31% at the end of last year. A reduction to 25% implies that Vedanta is looking to reduce debts by a dollar figure of $6.5bn in the medium term.
A long way to go
Unfortunately, Vedanta has a long way to go before it can be consider to be a good recovery play. Due to falling commodity prices the company is expected to report a loss this year. Analysts expect the company to report earnings per share of only 5.4p next year, that means that the company is trading at a relatively high 2016 P/E of 31.1.
Still, management has stated its commitment to the company’s dividend and with a yield of 9.2% at present levels, Vedanta is certainly an income investment worth a second look.
Restructuring takes shape
Petropavlovsk (LSE: POG) is also putting in a strong performance today, after the company’s restructuring programme began to take shape. Shareholders voted in favour of management’s refinancing programme, which included a rights issue and bond exchange offer last month. Since then, around a third of available shares in the company’s rights issue have been taken up.
While this is a disappointing result, the rights issue was almost fully underwritten or committed. So the company and its bankers should be able to find buyers for the remainder.
Petropavlovsk’s restructuring plan is intended to “secure the group’s immediate future” and allow it to increase production in 2015. And it seems as if the market believes that the company’s fortunes have improved following this deal. Investors are now clamouring to get their hands on Petropavlovsk’s shares.
Petropavlovsk’s shares have gained 43% since the rights issue take up figures were announced.
