In his Inside The City column for the Sunday Times this week, John Collingridge noted how turbulent stock market can be unforgiving for heavily discounted rights issues, focussing particularly on John Laing's issue earlier this month.
The FTSE 250 investor in road and railway infrastructure, as well as schools, priced its rights issue at a 29% discount.

Its board explained that the call for £210.2m cash was that it needed it to access a slew of American deals, which would generate significantly higher returns.

Collingridge said requests for such levels of cash were usually associated with desperation in the boardroom.

But investors stumped up – including the £6.3m in fees claimed by bankers and advisers – and were, to their delight, rewarded.

After a brief blip on the day of the issue, John Laing's shares have rebounded, closing at 255.6p on Friday, compared to the 251.7p closing price on the night before the issue.

The company was now valued at £938m.

So, was the rights issue really necessary, asks Collingridge, adding that Royal Bank of Canada analysts did not think so, noting that the exercise was more about the company's challenges squeezing cash from its assets, and its significant cost base.

“Investor feedback has raised questions about whether the rights issue was a fitting decision by management,” the RBC analysts wrote.

“Communication needs to be improved.”

There was another reason why the cash call did not quite add up, Collingridge added, after a recent deal involving trains.

Last week, the company sold its remaining 15% stake in the first phase of a private finance initiative deal to build and maintain the new fleet of Hitachi IEP trains, which are replacing the ageing HST high-speed diesel trains on a number of routes in Britain.

The stake was sold for an “eye-watering” £227.5m to insurance giant Axa.

Collingridge called it eye-watering, because five months ago the company sold a 9% stake in the same contract for £90m, meaning had it achieved the same valuation on the earlier sale, it would have raised another £45m, bringing down the amount raised in the cash call.

Apparently, industry sources had claimed that there was no competitive auction for the earlier stake, with the buyer being John Laing Infrastructure Fund.

That fund was founded in 2010 when it was spun out of John Laing, and was now cpmpletely independent with separate shareholders.

However, it still had first refusal on assets sold by John Laing.

“The relationship between the two perhaps needs more scrutiny,” Collingridge said.

Over in the Mail on Sunday, Joanne Hart was looking at Trinity Exploration & Production for her Midas piece, noting that at its peak in 2014, the company was valued at around £150m with shares trading at 159p.

However, since the oil price slumped, the Trinidad-based producer had found itself with too much debt, too many staff and too high a cost base, leading to chairman Bruce Dingwall issuing almost 200 million new shares in an extensive restructure.

The company was now valued at £44m, with a stock price of 15.5p.

But the company had successfully cut overheads, trimmed the fat in its workforce, and was now seeing improved production numbers, Hart noted, with the current price a “bargain” as it apparently still reflected the firm's troubled past.

Chairman Dingwall had plenty of history in the region and the sector, having been born and raised in Trinidad and spending more than three decades in the oil and gas business – the early years at ExxonMobil and Lasmo.

He then co-founded Venture Production in 1996, before leaving it in 2004, acquiring its Trinidadian assets and establishing Trinity Exploration in 2005.

Venture was eventually sold to Centrica in a deal worth more than £2bn.

Hard described Trinity as a “smaller beast” in the Trinidad oil sector – one which also features players such as BP, Chevron and Shell – but added that it had a significant local presence, with substantial assets onshore and some offshore as well.

Earlier in March, Dingwall released figures showing a more-than-10% rise in production from the first to the second half of 2017, with average production totalling 2,600 barrels per day, rising to 3,000 barrels in December.

This year, the company was reportedly aiming to achieve daily production of between 2,800 and 3,000 barrels, rising to more than 4,000 by 2020.

And while Trinity owned licences for more than 1,000 wells, it was focussing its efforts on just 140 of them to keep its costs low.

Hart said that over time, new wells would be drilled, but with Dingwall determined to keep costs down the company was now “one of the leanest” oil companies in the industry, with total costs of $30 per barrel.

“Prospects are brighter than they have been in years, the group's long-term ambition is to reach daily production of more than 7,000 barrels and brokers believe the share price should more than double over the next 12 months,” Hart said of the company's future.

“Adventurous investors should snap up some shares now. At 15.5p, they could prove a rewarding investment.”


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