25 May 2012

Falkland optimistic on oil hopes

23/06/2011 Ben Jaglom

Falkland Island Holdings (FKL), the company whose interests vary from art to transportation has declared a resilient set of full-year results.

Underlying pre-tax profits at FKL stayed broadly flat at £2.73 million (£2.69 million) for the year to March on sales of £31.8 million (2010: £29.2 million.) The group operates a diverse number of companies. Falkland Islands Company - which operates a number of retail outlets in the Falklands and a fishing business declared a 20 per cent increase in sales to £14.9 million. At the Portsmouth Harbour Ferry Company, which operates a ferry service from Portsmouth to Gosport turnover stayed flat at £3.7 million.

FKL also runs a fine arts and antiques business, Momart, which declared a 44 per cent fall in operating profit from £950,000 to £530,000. In addition the group holds a 5.8 per cent stake in Falklands oil explorer Falklands Oil and Gas, which declined in value from £15.5 million to £10.7 million.

Speaking to Growth Company Investor chairman David Hudd argued that 'the effect of oil exploration gave a big stimulus to the economy.' Regarding the fishing side of the group, he noted that it was a poor season for catching illex squid, though as a whole the fishing market was 'significantly better' than last year. Concerning any potential military threat to the Falklands he insisted that it was 'inconceivable' that there would be a war with Argentina.

He added that the future of the company will be focused on hoping for success in oil exploration from companies such as Desire Petroleum and Rockhopper. In 2012 there will be more visibility on whether or not oil exploration efforts will succeed in the Falklands' adding that if successful it will have a 'transformational' effect on the islands. If not, 'we will have to go back to fishing' he conceded.

Following the results analysts at house broker Altium downgraded their EPS forecasts, maintained their pre-tax profit estimates and raised their turnover forecast for the year to March 2012. The broker is pencilling in adjusted pre-tax profits of £2.7 million on turnover of £33.4 million, with EPS of 20.3p forecast. A dividend of 10p a share is also expected.

Recommended by Growth Company Investor last June at 512.5p last June, the shares have since lost 40 per cent, currently trading at 305p. Much of the future prospects of the group rest on companies such as Desire, Rockhopper and Falkland Oil and Gas winning the confidence of the market in 2012, which is far from certain. Furthermore political risks remain in the Falklands, with the distinct possibility of some sort of armed conflict developing over the islands future. We therefore downgrade the shares to hold.

Tags: David Hudd, Falkland Islands Company, Falklands Oil and Gas, GCI downgrade, Momart, Portsmouth Harbour Ferry Company

Sector: Support Services

Companies: Falkland Islands Holdings

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