Supermarket strains

While checkout activity at Sainsbury’s (LSE: SBRY) has improved in recent months, the company still faces a colossal task to overcome the increasing fragmentation of the British grocery market.

Indeed, latest Kantar Worldpanel statistics showed sales at the London firm slip 0.4% during the 12 weeks to April 24th, bucking a steady trend of recent rises. By comparison, revenues at Lidl and Aldi galloped 15.4% and 12.5%, respectively, during the period.

Sainsbury’s is scrambling to reduce its reliance on the ultra-competitive food market, exemplified by its takeover of Home Retail Group, a move that also significantly bolsters its multi-channel presence. But the supermarket still has its work cut out to transform the Argos operator, a business that is also being whacked by massive competition from the likes of Amazon.

Against this backcloth, City analysts expect earnings at Sainsbury’s to duck again in the year to March 2017, this time by a chunky 14%. A subsequent P/E rating of 12.5 is cheap but not cheap enough, in my opinion, given the company’s severe revenues pressures.

Out of juice?

Energy giant Centrica (LSE: CNA) faces a battle across all fronts to return to earnings growth. The steady erosion of its British Gas customer base has been a major headache for Centrica in recent years. Indeed, the relentless rise of promotion-led independent suppliers smashing revenues across the country’s ‘Big Six’ suppliers.

Despite the introduction of fresh, earnings-sapping tariff cuts, this trend continues to gather speed — Centrica’s British retail arm shed an additional 224,000 customers during January-March. And of course Centrica is also being whacked by the impact of subdued crude prices at its upstream division.

The City has subsequently chalked in a 12% earnings dip for 2016, the third successive fall if realised. While a P/E rating of 14 times is decent on paper, I believe this is far too expensive given the array of problems Centrica still has to solve.

Pump perils

The likelihood of prolonged commodity price pain is likely to remain a millstone around the neck of Weir Group (LSE: WEIR), too.

The pumpbuilder — whose products are used across the mining and energy industries — announced in its first quarter update last month that “trading conditions in oil and gas markets reflected further reductions in activity levels in all regions despite the limited improvement in oil prices in 2016.” Weir noted that the US onshore rig count sunk by 40% during the quarter.

Total like-for-like orders slumped 22% between January and March, the company advised, driven down by a 47% decline in oil and gas activity.

While orders in the minerals segment were better — underlying orders fell by ‘just’ 5% in the quarter — these are unlikely to improve substantially as colossal supply/demand imbalances across major commodity markets drag down prices, and with them capex budgets across the industry.

The City expects Weir to nurse a 29% earnings decline in 2016 alone. And I believe a subsequent P/E rating of 18.2 times is too heady given the firm’s patchy revenues outlook.

The post Why earnings should keep flagging at J Sainsbury plc, Centrica plc and Weir Group plc appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon.com. The Motley Fool UK has recommended Centrica and Weir. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The five sets of analysts that cover the company, Northland Capital, Westhouse Securities, finnCap, Jefferies International and Cantor Fitzgerald have an average price target for Chariot of 22p for Chariot’s shares.

But is this a realistic target?

Asset rich

Chariot is an asset-rich company. However, as of the yet, the oil minnow isn’t producing any revenue. The company is relying on farm out deals and share placing to raise cash.

Nevertheless, Chariot’s management is pursuing a low-risk strategy in the development of the company’s assets. This approach includes some useful farm-outs with larger partners.

Farm outs

Australia’s Woodside is Chariot’s partner in Morocco. Woodside has a 25% working interest in Chariot’s Rabat Deep prospect. Funds received from this farm-out have covered nearly all of Chariot’s Rabat Deep back project costs and Chariot is now looking for another partner to help drill the well.

The Rabat Deep JP-1 prospect contains an estimated 618 million barrels of oil. 

Over in Mauritania, at Chariot’s C-19 license, the company has also de-risked the project and recovered back costs through a farm-out deal.

Chariot and its primary partner on the prospect, Cairn, believe that there are 588mmbbls of resource at the C-19 license. Once again, Chariot is currently seeking a drilling partner before it moves ahead.  A number of other operators have recently made some impressive discoveries close to the C-19 licence improving its prospectivity.

Elsewhere, Chariot’s prospects in both Brazil and Namibia are moving ahead, and the company is seeking farm-out partners for the prospects. 

Well-funded

Unlike many other small oil companies, Chariot is funded for the foreseeable future, giving it flexibility to seek out the perfect project partners. The company is debt-free and ended 2014 with a cash balance of $53,5m, after last year’s placing that raised $15m. 

Moreover, Chariot has moved quickly to cut costs during the past few months in order to preserve cash while the price of oil remains depressed. As part of this plan, the company cut directors pay by 50% and CFO Mark Reid left the company. These two measures will save $1.5m in cash during 2015.

Asset rich 

It’s clear that Chariot is an asset-rich company, which is attracting the attention of some major players in the oil industry. However, whether the company can capitalise on these opportunities or not is another matter. 

Indeed, since coming to market during 2008, Chariot’s shares have lost 92% of their value as the company has struggled to move ahead. A number of exploration failures have hit the company’s share price hard over this period.

And with a cash balance of only $53m at the end of 2014, Chariot’s cash balance is the lowest it has been since 2011. Still, the company has enough cash to keep the lights on for the foreseeable future and additional farm-outs look to be just round the corner. 

High risk, high reward 

All in all, Chariot is a high-risk/high-reward play.

If the company manages to find partners to help it develop key prospects, Chariot’s shares could rocket higher. Although if management fails to negotiate any deals, there’s a chance the company could go out of business. 

The post Could Chariot Oil & Gas Limited Really Gain 126%? appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.