Shares of Gulf Keystone Petroleum (LSE: GKP), AFC Energy (LSE: AFC) and Coca Cola HBC (LSE: CCH) all moved higher in early trading this morning, as the market responded to news releases from the companies.
Payment delight
Gulf Keystone Petroleum delivered unexpectedly good news on its latest payment from the Kurdistan Regional Government (KRG).
Up until December, the company had been receiving a fixed monthly payment of $15m gross ($12m net) a month. However, the KRG announced that from 1 January payments would be based on netback oilfield revenues (linked to the price of Brent crude), plus an additional 5% of those revenues towards paying off arrears owed to the company.
Gulf Keystone’s fellow international oil companies operating in Kurdistan announced earlier this month that they had received their January payments. However, they worked out much lower than the previous flat rate. There was no word from Gulf Keystone … until today.
The company announced it will receive a revenue payment of $5.8m gross. In addition to the monthly entitlement, it will receive $9.2m gross towards arrears. It seems that Gulf Keystone, whose finances are in a more parlous state than its peers, has managed to negotiate a more favourable arrears payment.
However, even this preferential treatment, if it were to continue, represents starvation rations for a company that’s burning $6m cash a month and, in addition, making twice-yearly interest payments of $26.4m on its bonds.
Gulf Keystone remains in a precarious position with its future out of its own hands. It’s dependent on the cash-strapped KRG, a recovery in the oil price, and the willingness of lenders to refinance the first tranche of $250m bonds, which mature in April 2017. Or else it’s dependent on a cash-rich rival coming to the rescue with a partnership proposal or outright takeover. In short, Gulf Keystone’s shares remain more or less casino chips.
Optimisation
AFC Energy made good progress last year in seeking to prove its alkaline fuel cell technology on an industrial scale at a gas plant in Germany. The results of the final step of its 11-stage programme saw impressive output in excess of 200kW from its system, and demonstrating that its fuel cells can exceed the nameplate capacity of the individual 10kW cartridges.
However, the technical team decided it was “prudent” not to push the system to the 240kW the test was intended to prove, with the power-up revealing “adjustments needed to further optimise design parameters of the fuel cell stack and balance of plant”.
Today’s news is a partnership agreement with an engineering consultancy to support the optimisation of the system and provide other non-core services. AFC’s future appears to be largely in its own hands, and while the system isn’t quite at the level the company wants, the shares could prove a good buy for less risk-averse investors.
Brand power
FTSE 100 firm Coca Cola HBC bottles and sells The Coca-Cola Company products in 28 countries from Western Europe to Russia, and also in Nigeria.
Chief executive Dimitris Lois said he was pleased with progress in 2015 when unveiling the company’s annual results today. Volumes increased 2.6% and while statutory revenue declined by 2.5%, this was down to a -5.1% adverse foreign exchange impact. The company improved its EBIT margin impressively from 6.5% to 7.5%, helping to drive underlying earnings per share 13.5% higher.
In the outlook statement, Mr Lois said the company is “well placed to build further on both the volume growth and margin expansion”. This is an attractive company with one of the world’s elite brands. I’d say a valuation of 21 times forecast 2016 earnings with a 2% dividend yield is fair, but not cheap.
