Two of today’s biggest fallers are PR firm Huntsworth (LSE: HNT), down 11%, and Kazakhstan-based oil and gas producer Tethys Petroleum (LSE: TPL), which is down by 20%.
Although both firms have clearly disappointed investors today, the similarities end there: I believe one of these firms is a potential buy, while the other is a definite sell.
Huntsworth
Huntsworth issued its annual results this morning, revealing a 0.9% decline in revenue and a 23% decline in operating profit, which fell from £23.6m to £18.2m in 2014.
Even worse was a £71.5m goodwill impairment on the company’s Citigate and Grayling businesses, as a result of poor trading conditions, which are now expected to persist for longer than expected.
Earnings per share fell by 25% to 3.7p, and management disappointed shareholders with a surprising but sensible decision to cut the dividend by 50%, from 3.5p to 1.75p.
Is Huntsworth a buy?
Despite the firm’s decision to cut the dividend, today’s adjusted earnings per share of 3.7p were in line with the latest consensus forecasts of 3.6p per share, putting Huntsworth on a trailing P/E of 10.8, with a yield of 4.4%.
The company has had a boardroom clear-out in recent months, and a new chief executive, Paul Taaffe, started work on Tuesday.
Huntsworth doesn’t look expensive, and has low debt levels and strong cash flow — this firm could well be a good turnaround buy, in my view.
Tethys Petroleum
Even before today’s collapse, Tethys’ share price had fallen by 78% over the last year, as the firm’s apparent inability to generate any spare cash combined with the oil price crash to prevent Tethys delivering on its original promise.
Today’s update confirms that things are now likely to get much worse: the firm’s $75m investment deal with Chinese firm SinoHan, which was agreed in November 2013, has still not been approved by the Kazakh Ministry of Energy.
Approval is needed by 1 May or the deal will collapse, forcing Tethys to seek new funding and to repay a $3.9m advance it received from SinoHan — money which Tethys says it does not have.
There’s a real prospect that Tethys could soon go into administration, or be refinanced in such a way as to destroy the value of existing shares.
I think that the only prudent approach here is to sell — staying in or buying after today’s news is a pure gamble, in my view.
