Friday tips round-up: Next, Ophir Energy

Some investors do not like special dividends, like that announced by Next. They make the dividend stream from a company less predictable and hence the shares more risky. Share buy backs, on the other hand, defer investors’ tax liabilities. However, only some investors – those who sell – benefit from buybacks. Furthermore, the practice tends to be highly pro-cyclical.

Firms tend to buy their own stock when it is higher, which is also expensive. In part, that explains why the fashion retailer opted for a special dividend. The outfit limits buy-backs to when they can have a minimum impact on earnings of 8%. They are now slightly above that limit. Such capital discipline is admirable, says the Financial Times’ Lex column.

On Thursday the Dubai National Oil company made what looks like an opportunistic bid for Turkmenistan-focused Dragon Oil. Its last bid came in 2009. Is someone calling a bottom in the oil market? If so, then the event might be imminent.

Against that backdrop, and much like Faroe Petroleum, Ophir Energy’s valuation is now conspicuously cheap. It has just bought Salamander Energy, with the wells located in the Far East that brings with it, and once everything is settled it will have $800m in the bank after it sold a stake in three Tanzanian blocks in March for $1.3bn.

Furthermore, this year alone the cash-flow from Salamander will be $150m, as opposed to the current market capitalisation of $1.3bn. That financial flexibility means it has the ability to scoop up cheap assets while it concentrates on developing its most promising prospects.

“I am not suggesting you pile huge sums into Ophir. It seems, though, that the price may have not much further to fall, if oil stays where it is, then the company is among the better geared for any recovery,” says The Times’s Tempus.