Amec
Over the course of the last year, shares in Amec (LSE: AMFW) have fallen by 22%, as the weaker oil price has significantly hurt the company’s near-term outlook. However, the impact has been much less than for many of its oil industry peers, with Amec’s bottom line falling by a relatively modest 8% last year and being forecast to flat line this year. And, with growth of 8% being pencilled in for next year, it appears as though the company is managing its cost base highly effectively and becoming more efficient; both of which would be appealing to a potential suitor.
Of course, Amec’s valuation is also very enticing. It currently trades on a price to earnings (P/E) ratio of just 11.2 which, for the quality of the company and its long-term outlook, looks like a steal. As such, a bid for Amec seems to be highly possible.
Ophir Energy
One of the key considerations at the present time for oil companies is their financial standing. That’s because a lower oil price has significantly squeezed revenue and, with the outlook being somewhat bearish regarding the prospect of an oil price rise, the bottom lines of oil stocks are being scrutinised to a far greater extent than when oil was sitting above $100 per barrel.
As a result, Ophir Energy (LSE: OPHR) appears to be rather less appealing than it did one year ago. Certainly, its share price has fallen by 29% in the last year, but it is expected to return to loss-making territory in the current year and remain there in 2016. This is likely to put off potential bidders, since oil companies have become more risk averse in recent months and, while Ophir does have a bright long term future, its negative forecasts for the next two years could hold back potential purchasers from making a bid.
Cairn Energy
It’s a similar story for Cairn Energy (LSE: CNE), with it having made a loss in four of the last five years and being forecast to continue to do so in each of the next two years. However, unlike Ophir, it trades at a major discount to its net asset value despite its shares having risen by 1% in the last year.
For example, while Ophir has a price to book (P/B) ratio of 1, Cairn Energy’s P/B ratio is just 0.55. This means that, while write downs to the company’s asset base are a very real threat moving forward, a very wide margin of safety appears to be built in to its current valuation. So, while it is loss-making, Cairn Energy is dirt cheap and this could cause a bid to be made for it – especially if the risk aversion of oil companies recedes over the medium term.
