UK borrowing hits post war record

The U.K. government will borrow  a staggering £163 billion this year,  but down £12 billion from forecasts last year and £3billion less than projected in the budget.  This equates to £3,200 for every adult in the United Kingdom. 

Ithaca Energy announces $140 million debt financing

Good news from Ithaca Energy today with the announcement that they mandated Bank of Scotland as lead arranger on a $140 million senior secured borrowing debt facility. The money will be used to fund the development of the Stella field and the satellite discoveries Harrier and
Hurricane and/or fund future potential acquisitions of production properties in the North Sea. Furthermore the company confirmed that engineering scoping work has already started on the Stella development and satellite discoveries, Harrier and Hurricane based on the outcome of the Stella
appraisal well.

Iain McKendrick (Chief Executive Officer) commented:
"Further to our strong 2009 financial results and the very encouraging Stella appraisal well, the Company is well positioned to grow. This facility provides a major building block towards funding the capital expenditure required for the development of the Greater Stella Area but also the flexibility to finance a significant acquisition. The high level of support offered by the Bank of Scotland to Ithaca reinforces our view of the underlying strength of the Company cash flow and reserves".

The share price has responded positively with a rise of 5.7% to 177p despite a falling market. It means that the threat of a dilutive placing or rights issue has been avoided which is good news for Ithaca shareholders.  The company now has the prospect of a fully funded programme to exploit the Stella field and opportunities to pick up other assets which should drive earnings significantly upwards in 2011.

IMF predicts Europe growth will lag U.S.

The International Monetary Fund (IMF) is predicting that growth in euro area would lag that of other developed economies reducing its growth forecasts in the region to 1.5% in 2011 from 1.6%. It revised up its prediction for U.S. growth next year from 2.4% to 2.6% with the U.K. being revised down from 2.5% from 2.7%.

The IMF forecasts world growth at 4.2%, up from 3.9%, with 2011 unchanged at 4.3% growth. This supports the view that investors should be focusing on companies with a global earnings profile, not those with a large percentage of its earnings in the euro zone or the U.K.

IMF proposes global bank tax

A leaked report from the IMF (Internatioal Monetary Fund) has proposed two new global taxes should be levied on financial institutions to pay for possible future financial crises.

A Financial Stability Contribution, would be used to create a fund to help pay for any future government support. The second tax, called a Financial Activities Tax or FAT, would be levied on pay and be based on both the profits and remuneration of financial institutions.

The IMF prpposes that the Financial Stability Contribution should be applied on bank balance sheets, specifically their liabilities, to stop banks becoming "too big to fail". Each country should aim to raise between 2% to 4% of gross domestic product over the long term.

Given intense political pressure in many major economies to claw back some of the huge state bail outs during the financial turmoil of 2009 and prevent future failures it is likely that some form of tax will be agreed by global leaders. The eventual size of the tax contributions needed by financial institutions will dictate the impact on their future earnings. However, they are unlikely to be of such a size to trouble shareholders unduly.

UK inflation rises above expectations

The Bank of England's target measure, CPI inflation, increased to 3.4 per cent, up from 3 per cent in February mainly due to surging fuel prices as the price of oil moved above $80 a barrel. This means it is now the fourth month that CPI inflation has remained above the Bank's 2% target. Core inflation, which takes out the impact of food and energy costs, also moved up from 2.9% to 3% and RPI (Retail Prices Index) inflation, which includes housing costs, also rose to 4.4 per cent in March from 3.7 per cent. The average cost of a litre of petrol is now 120.9p compared to 95.2p in the same period in 2009, according to the AA.

This may mean that the BOE may move to tighten interest rates from the rock bottom 0.5% level sooner than expected if the GDP numbers due Friday are also robust

Goldman Sachs and Coke deliver strong quarter

Goldman Sachs (GS) has just reported that its quarterly profit doubled compared with the same period a year earlier. Goldman's net income rose to $3.3 billion, $5.59 ashare, from $1.66 billion, or $3.39 a share in the same period in 2009. Estimates were for earnings per share of $4.16. Top line revenue rose 35% to $12.78 billion.

The earnings news has created significant controversy after the news that the SEC was investigating Goldman for potential fraud on a CDO product announced last week and the Financial Services authority (FSA) announcing their own enquiry today. Prime Minister Gordon Brown said he was shocked by the "moral bankruptcy" exposed by the SEC's suit.

Coca-Cola (KO) reported increased earnings of $1.61 billion, or 69 cents a share, from $1.35 billion, or 58 cents, earned in the year-ago period. Adjusted net income was 80 cents a share and revenue rose to $7.53 bn, up 5% versus a year ago as the company delivered volume and market share growth. Analysts estimated earnings of 74 cents a share and revenue of $7.66 billion.

Portfolio review of the week April 17th 2010

Markets fell heavily yesterday after consistent gains earlier in the week, as Goldman Sachs (GS) posted a 13% drop to $160.7 on fraud charges brought by the Securities and Exchange Commission. The drop was the biggest one day fall in the stock's history. Technology stocks were also in the red with Google (GOOG) dropping $45 dollars or 7.5% to $550 on first quarter results.

The Dow Jones Industrial Average finished Friday down 125 points, or 1.1%, to 11,018. Despite the fall, the DOW showed its seventh week of gains. The S&P 500 Index fell 19.5 points, or 1.6%, to 1,192, below the key 1,200 technical level. The FTSE 100 index dropped 81 points, to 5,744.

The SEC, has accused Goldman Sachs and a London-based executive director, Fabrice Tourre, of failing to disclose information about a synthetic collateralized-debt obligation (CDO), related to subprime residential mortgage-backed securities. It also is said to have not disclosed the role that hedge fund Paulson & Co played in the portfolio-selection process and the fact that the fund was shorting the CDO. Investor's lost around $1 billion in the investment.

On the portfolio front it has been a relatively quiet week as I have trimmed long positions on the run up. Some shorts on the FTSE 100 and DOW placed yesterday morning could have been extraordinarily profitable following the Goldman news but were unfortunately not closed at the lows of the day. Its a waiting game for Contrarian Investor UK at the moment as I'm not rushing to commit extra funds into this market.

GW Pharma (GWP) - The portfolio's largest holding had a good end to the week with a 4.5% rise yesterday despite the market falls to finish at 114p. I am puzzled at what is driving this gain as the approval of the UK and Spanish national licences are not expected for Sativex for some weeks yet. May and June will be the months where the exciting news flow starts to come so its a question of watch and wait. Hopefully this will move up gradually over the next few weeks as the regulatory update in March hugely de-risked this share.

Nighthawk Energy (HAWK) - A short term trade was placed this week on news of a drilling update and director buys. Position closed at 29p.

Ithaca Energy (IAE ) - Following news from the appraisal well on the Stella field in the North Sea a position was initiated but not in the Contrarian Investor core portfolio as this will be a longer term story.

Goldman Sachs charged by SEC with misreporting and drives down financials

The U.S. SEC (Securities and Exchange Commission) has charged Goldman Sachs & Co (GS) and one of its vice presidents with misstating and omitting key facts about a financial product related to subprime mortgages. Goldman shares are currently 20 dollars to $164, and the statement has had a significant impact on the overall market with the DOW industrials currently down 60 at 11,090 and FTSE 100 down 56 at 5,767.


Shorts on the FTSE and DOW placed this morning were closed with this fall.

UK government moves into profit on RBS stake

Royal Bank of Scotland Group PLC (RBS) is up 8% today to 50p as Bank of America Merrill Lynch said the 84%-government owned bank could turn to a profit this year as bad-debt charges and costs fall and margins increase. It thinks RBS shares could double in value over two years on an improved earnings outlook and raising its target price from 45p to 65p. Morgan Stanley also increased its target price on the bank to 50 pence from 40 pence on lower impairments, good asset quality and capital position.

The U.K. government's spent £45.2 billion rescuing RBS in 2009 at an average price of 49.9p.

General Electric beats 1st quarter estimates

General Electric Co. (GE) has just announced that its first-quarter earnings fell 32% to $1.87 billion, or 17 cents a share, and revenue fell 5% to $36.61 billion. From continuing operations it earned 21 cents a share, compared to estimates of earnings of 17 cents a share on revenue of $37.3 billion. Its financial arm, GE Capital, saw its profit drop 41% to $607 million as revenue fell 10%.

The company said it may evaluate additional restructuring that will improve earnings power going forward.

Google earnings rise 35% year on year in first quarter

After the close last night, internet search company Google (GOOG ) said first-quarter revenue was $5.06 billion and net income rose to $1.96 billion, or $6.06 a share, from $1.42 billion or $4.49 a share in the same period in 2009. Excluding special items, earnings for the 1st quarter were $6.76 a share against analyst expectations of $6.60. Google's rate of paid clicks, or the number of times users clicked on its advertisements and generated revenue, rose 15% from the same quarter last year. It had posted 13% growth in paid clicks in the prior fourth-quarter report. Analysts had been looking for first-quarter paid click growth in the range of 12% to 14%.

Some analysts were concerned that it had begun to hire aggressively again in the first quarter, meaning that its total costs and expenses rose to $4.3 billion from $3.6 billion in the same period last year. This drove the share price down 26 dollars to $569, a drop of over 4%, after hours. When out of 27 analysts, 25 have it as buy or overweight this shows the weight of expectation on Google's shares. Although the company beat estimates, the earnings outlook for the rest of the year has moved the share price down. It must be a legitimate concern, whether GOOG can continue driving earnings growth at the same rate if costs rise, its "bread and butter" search engine ads slows down, its exit from China curtails future growth and its acquisitions such as YouTube continue to disappoint in terms of monetization.

It seems the hypothesis that ad spending was going to increase substantially in 2010 is playing out. Companies such as ITV in the UK are already seeing the benefits of this rebound in their share prices with it touching 69p today, 20p higher than the point in March when Sky offloaded its stake. Frustrating to have sold out at 60p!

Mobius's Top Ten investment tips

I liked this story from Times Money Central June 2009 which lists Templeton Emerging Markets' Guru, Dr. Mark Mobius top ten investment tips:

1. Keep an eye on value
Is a share selling for below its book value? What is the relationship between the earnings and the price?

2. Don’t follow the herd
Many of the most successful investors are contrarian investors. Buy when others are selling and sell when others are buying.

3. Be patient
Rome was not built in a day and companies take time to grow to their full potential.

4. Dripfeed your money into the market
No one knows exactly where markets are going so dripfeed your money into the market by making regular investments. That way you will average out the ups and downs of the market.

5. Examine your own situation and your appetite for risk
You should not go into equities if you are the type of person who is nervous every time you read a stock market report.

6. Diversify your portfolio
You must never put all your eggs in one basket unless you have a lot of time to watch that basket - and most of us don’t.

7. Don’t listen to your friends or neighbours when it comes to making investment decisions
Your own situation is different from everyone else’s so you should be making the decisions.

8. Don’t believe everything you read in newspapers, because things tend to be exaggeratedDon’t be swayed by headlines and look at what is going on behind the scenes.

9. Go into emerging markets because that is where the growth is
Emerging markets have consistently grown much faster than the developed countries in virtually every year since 1988.

10. Look at countries where populations are relatively youngCountries with young populations are going to be the most productive in future years.

Ithaca Energy tucked away into SIPP for medium term

Yesterday's news on the early appraisal of the North Sea Stella field indicating that its reserves are much higher than anticipated was good news for Ithaca Energy (IAE). Last week it announced its first profit of $7.9 million on revenues of $111 million, after a loss of $30.4 million (£19.7 million) in 2009. The results were driven by a 50% share of 7,083 barrels of oil per day production from the Beatrice and Jacky fields in the North Sea. Earnings estimates for 2010 are $0.36 per share and $58.7 million. At the current share price of £1.62 ($2.44) this puts Ithaca on a forward p/e of 6.8.

The company has no debt and $30 million of cash. It plans to develop its Athena field and acquire other North Sea assets in what it considers to be a buyer’s market for undeveloped discoveries. The Stella field will come on stream in 2012 with reserves up to 20 million barrels and it is possible that further upgrades of the field's reservoir will be forthcoming.

Although I do not anticipate too much further share price appreciation in the short term after the 10% rise yesterday, I have bought Ithaca in my SIPP (Self Invested personal pension) since the next couple of years should see earnings move up sharply. Though Ithaca can be volatile as it is traded on both the Toronto Stock Exchange and AIM in the U.K. from a fundamentals and momentum point of view this company ticks the boxes.

Ithaca Energy issues positive statement from Stella North Sea field

Ithaca Energy (IAE) announced today that drilling in their North Sea field Stella had found more oil than expected and confirming its viability meaning the company's reserves could be increased by up to 25%.
Ithaca's chief exploration officer Nick Muir said "The field is clearly even more significant than we thought and the results of this well and the test have exceeded all our expectations,"

The company said that it now knows the reservoir has a total hydrocarbon column of more than 820 feet, confirming oil more than 500 feet lower than that found in previous wells, and establishing the reservoir as 'fill to spill', meaning connected hydrocarbons are present throughout.

Following the news it looks like Ithaca's prospects look increasingly positive, though drilling will not start until 2012. Despite the despite 10% increase today to 162p the shares still look good value.

S&P breaks through key technical barrier

It was a fifth day of gains on Wall Street last night with strong results from Intel (INTC) and JP Morgan (JPM) driving the Dow Industrials to 11,123, up 103 points, the highest rise since March 5th. The S&P 500 broke through the key 1200 barrier, its highest since September 2008, to finish 13 points higher at 1,211.

The FTSE 100 is up marginally to hit 5,800,  like the S&P 500, the highest since September 2008 when Lehman Brothers filed for Chapter 11 bankruptcy.