Sunday newspaper share tips: Mytrah Energy and Royal Dutch Shell

November 5, 2012 by  
Filed under Wind Energy Tips

By
This Is Money Reporter

09:09 EST, 4 November 2012


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09:09 EST, 4 November 2012

We round up the Sunday newspaper share tips: This week Mytrah Energy and Royal Dutch Shell.

Read the full Financial Mail on Sunday Midas column here and sign up to exclusive share tips from Midas Extra here.

Tips: Check out the latest share recommendations

Tips: Check out the latest share recommendations

Mail on Sunday

Mytrah Energy listed on the Alternative Investment Market on October 12 2010 at 115p. At the time it had no assets. Today it is the second largest independent wind power company in India, with contracts in place to sell electricity for the next 20 years.

Mytrah is already making money and profits are expected to soar over the next few years. Yet the shares have fallen to 74.5p. At this price they are a bargain.

Mytrah was founded by two successful entrepreneurs, Ravi Kailas and Alastair Cade. Mr Kailas has already built and sold two companies in India. Mr Cade co-founded London stockbroker Daniel Stewart.

A couple of years ago, the pair realised that the Indian renewable energy market presented a real growth opportunity. There was huge demand for energy, supply was limited and wind farms were far cheaper to build than in other parts of the world.

In the months before listing, Mytrah secured a contract with India’s leading wind turbine maker and operator, Suzlon, which guaranteed to deliver 1,000 megawatts of electricity at a fixed price by 2017.

Mytrah already has the capacity to generate 316MW of electricity, enough to power 200,000 homes in the UK, but many more in India. By June next year, that figure should have risen to 610MW and over the next five years, Mytrah hopes to build enough farms with the capacity to generate 5,000MW.
The company has also signed deals with the Indian government under which it is contracted to supply electricity for the next 20 years.

In the year to March 2012, Mytrah turned over nearly £4.5 million and made a loss of £1.75 million. However, in the year to March 2013 the group is expected to make profits of up to £28 million, rising to £60 million in 2014.

Mytrah is well funded and will be able to sustain decent growth for the next five years from its cash resources. Shares are a buy.

Telegraph

Royal Dutch Shell has ambitious plans to increase production over the next few years, but some investors fear that the level of investment needed will crimp returns.

Aggressive strategies to increase reserves and grow future production always present a risk – as BG Group found to its cost earlier this week. However, Questor feels confident this is the correct strategy for Shell to pursue.

The company appears to be on track with its plans, despite a 1pc fall in production in the third quarter to 2.982m barrels of oil equivalent a day. This was mostly down to temporary shutdowns in the North Sea and Gulf of Mexico. However, there were problems with security in its troublesome Nigerian operations, which forced some closures. Divestments also hit the numbers.

Shell’s strategic plan builds on the group’s increasing bias towards gas. Indeed, in the past three months, gas production rose 4pc and liquid output was down 4pc.

In the US, the company has adjusted its onshore strategy from shale gas to focus more on “tight oil” because of low gas prices. Tight oil is found in porous rock formations and it is extracted in a similar process to shale gas, by hydraulic fracturing, or fracking.

US gas prices are down 29pc on a year-on-year basis. However, as the recovery gathers pace in the next few years and the US starts to export gas to energy-hungry Asian markets, prices should recover.

The most important thing for investors to consider about Shell is its cash generation. The company’s stated strategy is to improve cash flow by 50pc to $200bn over the 2012-15 period and by 2018 production is expected to be 4m barrels of oil equivalent a day compared with 3.2m in 2011.

Liquefied natural gas (LNG) will be a major contributor to future earnings, with a 4pc rise in sales in the third quarter to 4.97m tons boding well.

However, the dividend attractions remain. The quarterly dividend was increased by 1c to 43c and it will be paid on December 20. The shares trade without entitlement to this payment from November 14. The prospective yield in 2013 is a healthy 5pc.

The company has the scope to increase its payments, despite its ambitious capital expenditure plans. Gearing stood at just 8.6pc, down from 10.8pc a year ago, so borrowings are very low.

The shares have underperformed the FTSE 100 this year by around 9pc – so they are trading on a prospective earnings multiple of 8 next year. For comparison, BG Group’s multiple is 12.8.

The fourth quarter of the year could be tough, with refining margins easing and the oil price remaining subdued. However, successful delivery of the group’s new projects should lead to capital appreciation over the next few years. A global economic recovery will help the demand side of the equation, too – although this remains elusive right now.

Last tipped as a buy on July 17 at £22.90½, the shares remain a buy for income and delivery on strategy.

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