Date: Monday 27 Aug 2012
Violence at Lonmin’s Marikana mine after a wage dispute escalated has left 44 people dead and a company in crisis. Net debt at the interim stage was $356m and, because the company’s revenues have now plunged, a rights issue may be necessary. Marikana makes up 96 per cent of Lonmin’s output. Analysts have noted that a rights issue of about $1bn may be necessary to keep the its mines open. Xstrata wrote down the value of its 25 per cent stake in Lonmin by $514m in its recent interim numbers. This still leaves its 49.8m shares valued at $1.022bn, or in the region of £12.92 a share. This is more than double the current market price, implying a further write-down could be in order if there is no recovery. If a rights issue does occur, Xstrata will also have to stump up more cash. Of course, the shares could re-rate, but with mining sentiment negative and potential dilution from a rights issue, The Sunday Telegraph´s suspects it won’t happen soon. Some bargain hunters have moved in to buy the shares over the last few days, but this looks like a brave move. The political situation is tense and some analysts have interpreted the 12 per cent spike in the platinum price as an indication that the market feels the strike will remain unresolved for some time. Current earnings forecast are now meaningless and a potential share sale means good money may have to be thrown after bad. Questor does not advise taking the risk of investing in Lonmin, given the potential potholes ahead.
Shares in Primary Health Properties are near their top of the trading range seen over the last year. However, the yield still looks attractive. In the six months to June, rental income from the group’s portfolio rose 6.3% to £16m, with pre-tax profits falling to £4.2m from £12m. This fall is unconcerning. It was down to a much larger revaluation of the company’s property portfolio in the first half of last year and higher finance charges. Stripping out the revaluation gain, operating profit was up 6.5% to £13.4m. Importantly, the dividend was raised to 9.25p from 9p and it will be made on Oct 6. The shares have a prospective yield of 5.5% rising to 5.6% in 2013. The main reason to hold the shares is as an income play, but there should be capital gains over time as the portfolio grows. The group has a “significant pipeline” of opportunities and £49m is in the hands of solicitors for the purchase of “high quality medical centre assets”. Demand for new, modern facilities should be driven by the Health and Social Care Act 2012 with the commissioning of primary care service into the hands of GPs. Buy for income, Questor says.
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