Thursday tips round-up: First Group, Green Dragon Gas

3rd Apr 2014 07:38

First Group seems to be in decent shape, given that it has four contract renewals and bids for new franchises coming up. Also, its British bus division continues to grow steadily, with like-for-like sales rising by two per cent over the last year. Meanwhile, its rail division saw revenue growth of nearly six per cent. The latter may also benefit from a lengthy extension to its First Great Western contract. The US operations, on the other hand, were one of the victims of the recent "polar vortex" Stateside. That blew a 14m pound hole in its full-year profits. What is readily apparent is that the turnaround at the company's different business segments is running at different speeds. That has played right into the hands of activist investors, such as Sandell Asset Management, who have been pushing for a breakup. This is the main explanation behind the recent sharp run up in the share price. At 12.8 times' earnings, in line with its peers, "nobody should be rushing to board just yet," The Times' Tempus. Green Dragon Gas has reached a landmark agreement with a subsidiary of China's largest state owned oil company, China National Offshore Oil Corp. (CNOOC). Green Dragon will regain an interest in approximately 1,300 gas wells drilled on land confiscated from it in 2011. In exchange, it agreed to share revenue with the state-owned behemoth, China United Coalbed Methane Corporation, from 2013 in perpetuity. The state is also to provide about $350m investment into infrastructure and exploration. Critically, there is potentially more upside to be had in the shares as the company is unaware of the extent of drilling on its land - which is roughly the size of Wales. In any case, a significant increase in its reserve estimates is now expected. The outfit produces gas at a price of between $3 to $4 per million cubic feet (mcf), whereas the selling price can be as high as $14 mcf in some parts of the country. The shares are still a 'buy', albeit difficult to come by given the low free-float, The Daily Telegraph's Questor team says. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB