Thursday tips round-up: RBS, Severn Trent, Xcite Energy

13th Jun 2013 08:36

Shareholders in Royal Bank of Scotland (RBS) face even more uncertainty now that Mr.Hester is abandoning the top job at RBS. Yes, the lender will probably manage to turn a profit this year of 2bn pounds, versus net losses of 24bn pounds during the year he started. However, his successor will need to convince investors to buy a 30bn pound stake of equity which means convincing them of something more than just, "RBS will be less of a basket case in the future than it was a few years ago." The challenge is particularly acute in its investment banking arm, which has absorbed a big chunk of the cuts as the balance sheet has been shrunk. Yet investors should be used to that, writes the Financial Times's Lex column. Independent North Sea developer Xcite Energy has just awarded Amec a contract to work on the Bentley heavy oilfield. The successful development of Bentley is critical to Xcite, although there have been some good news of late. The company has doubled its estimates of the potential reserves there to a hefty 250m barrels. However, tapping its potential is forecast to take $700m before the project turns cash-positive, towards the end of 2015. Xcite has some flexibility as regards its ability to finance itself, although it is seeking a partner to help it exploit the field. Xcite shares have been erratic, but the project has now been de-risked and will go ahead. Worth holding, but any valuation is still subjective, says The Times's Tempus. Shares of Severn Trent are now lower than before the recent purchase offer was made. Whether the company should have 'engaged' the LongRiver consortium will be a matter of debate. However, the fact the company sees significant value in the business for its owners, above and beyond a 30% premium to its regulatory assets, may make for an interesting discussion with Ofwat in its looming pricing talks, says The Daily Telegraph's Questor team. Hence, it looks a safe bet that allowed returns in the next regulatory review will be lower even for listed companies. While investors in water companies are long-term, and RPI-linked returns are an attractive, the shares are likely to drift in the absence of a positive catalyst such as a bid. Questor thus keeps a hold rating because of the uncertainty. 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