Should You Buy Or Sell Today’s Big Movers Genel Energy PLC & Fastjet PLC?

Roland Head explains why Genel Energy PLC (LON:GENL) has rocketed higher today and why Fastjet PLC (LON:FJET) has crashed.

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Shares in Kurdistan oil producer  Genel Energy (LSE: GENL) rose by as much as 13% this morning, after the company said it would buy back at least $50m of its own bonds.

This move has been well received by the market because it will cut Genel’s future outgoings significantly. Genel has cash on hand of about $450m. It makes sense to use some of this money now, as it’s not really generating any returns for the firm.

The savings are potentially significant.

Genel has $750m of outstanding bonds, which are due for repayment in 2019. These bonds have a coupon, or interest rate, of 7.5%, so interest costs are about $56m per year.

However, the low oil price and the risks involved in operating in Kurdistan mean that Genel’s bonds have fallen heavily. They currently trade for around half their face value. Buying them back at a discount to face value will reduce the amount Genel has to repay in 2019. It will also reduce the group’s interest bill in the meantime.

Reserves update

Genel also slipped out a second piece of news this morning, providing an update on its oil reserves. Today’s update deals with the Tawke field, in which Genel has a 25% stake. Proved reserves for this field were upgraded by 21% from 319m to 387m barrels of oil, thanks to an improvement in recovery rates.

Although there was a reduction in probable reserves, the increase in proved reserves bodes well for near-term production, in my opinion.

Genel shares remain a risky buy but there’s no doubt in my mind that the company is one of the more attractive options in this high-risk sector of the market.

Fastjet

Shares in troubled African budget airline Fastjet (LSE: FJET) are down by 20% as I write, after easyGroup chairman Sir Stelios Haji-Ioannou published online a letter he sent to Fastjet.

easyGroup has a 12.6% shareholding in Fastjet and also owns the Fastjet brand. The letter from Sir Stelios alleged that Fastjet is only selling 10% to 15% of the seats on one of its main routes, between Dar es Salaam and Nairobi.

Sir Stelios also said that recent mystery shopper activity has shown that the airline isn’t operating flexible pricing for seats or allowing credit card payments at its Dar office. The letter suggests that fixed pricing is contrary to airline best practices and is likely to be one reason for poor ticket sales.

The letter also asks why Fastjet hasn’t published any monthly passenger statistics since November. The implication is that this has been stopped in order to hide the bad news from shareholders.

Sir Stelios’s final concern is that Fastjet may run out of cash in the next few months. The airline could potentially be forced into insolvency, damaging the brand. He’s asked to be given access to cash flow forecasts and passenger statistics.

I’m sure that all Fastjet shareholders would like to know the answers to easyGroup’s questions. However, in a response published this morning, it didn’t provide any new information. Instead, Fastjet simply complained about the letter being made public and threatened easyGroup with legal action.

In my view this suggests that many of the accusations in the letter may be true. Fastjet shares could continue to fall, in my opinion, although an easyGroup-backed rescue may be possible.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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