By Jenny Ruth
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Friday 3rd July 2009 |
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About 40% of New Zealand Oil & Gas's investments are currently "problematic," says Andrew Harvey-Green at Forsyth Barr.
"Holding cash is not an efficient use of shareholder funds, Pike River Coal is a non-core holding and, if NZO is unable to take over Pan Pacific Petroleum, that investment also becomes non-core," he says. The company owns 31% of Pike River and 15% of Pan Pacific.
"The cash balance that looked strategically strong six months ago is no longer so attractive," Harvey-Green says.
"It appears that NZO has missed the bottom of the market as commodity prices have rallied and assets that were previously under stress are no longer under as much stress," he says.
"We fear that NZO may have missed an opportunity of a lifetime and expect investors to increasingly question how much longer NZO should sit on its cash.
He says the company's share price has benefited from a rally in commodity prices in recent months but it is no longer as sensitive to the oil price as it once was with Tui, in which it has a 12.5% interest, having converted 46% of its oil reserves into cash.
"This is one reason why its investment strategy is so important," Harvey-Green says.
BROKER CALL: Forsyth Barr RATE New Zealand Oil & Gas (NZX: NZO ) as accumulate (downgraded from buy).
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