It's perhaps no surprise that two out of three of this week's 52-week lows are oil producers, given the heavy falls and renewed nervousness associated with that commodity recently.
Crude oil is now trading at just US$40.94 a barrel – down 56% for the year – and several analysts are predicting it to dip potentially as low as US$32/barrel in the near future. This would be catastrophic for a number of companies and could see companies like the still-profitable Santos Ltd (ASX: STO) – which hit a 52–week low just yesterday – struggle considerably.
But first, the only non-oil producer on the agenda:
Infomedia Limited (ASX: IFM) – last traded at $0.915, up 5% for the year
Infomedia was smashed early in the session, falling as low as $0.795 before recovering in the late afternoon as some of the panic wore off. A positive result revealed the company had grown earnings by 6% and net profit by 8% in the past 12 months, but the result was overshadowed by revelations that two long-serving board members – the CEO and a non-executive director – had resigned from the company.
With one retiring and the other pursuing 'projects' after more than 20 years each with Infomedia, the news appears to have spurred investor worries about the succession planning.
Infomedia is a decent company that is more than the sum of its managers and I feel that its share price has gone roughly as low as it will go, assuming that the resignations aren't a herald of more cockroaches in the floorboards.
Investors will have to evaluate if they are comfortable taking that risk before they buy Infomedia at today's prices.
Beach Energy Ltd (ASX: BPT) – last traded at $0.72, down 58% for the year
Shareholders in Beach Energy have had a rough week and/or year as weaker oil prices have hurt revenues and wiped a casual billion dollars off the company's value.
If oil really does fall significantly further in the months ahead, Beach Energy shareholders could be in for some pain as the company possesses a number of wells that operate at around the $25-30/barrel 'cash cost' (in Australian dollars, before overheads) per annum.
This could spur further cost-saving measures and a reduction in capital expenditure in an effort to remain profitable until prices improve. Beach and similar companies are starting to look appealing at today's prices for investors like myself who believe the price of oil will move higher over time.
However, in advance of its annual report on Monday August 24, I believe it is too soon to make a decision either way on Beach Energy.
Origin Energy Ltd (ASX: ORG) – last traded at $8.45, down 41% for the year
Utility and gas producer Origin Energy has seen its shares smashed more or less in line with pure-play oil/gas companies as a result of its strong exposure to this sector.
Massive losses probably also played a part, with the company yesterday reporting a 7% decline in revenue and a swing from $530m profit in 2014 to a loss of $658m in 2015. With only $151m in cash, investors are likely to experience growing debt or asset sales – probably of NZ-listed Contact Energy Limited (which I wrote about here) – in 2016.
Furthermore, I'm not confident that Origin is a long-term buy even at today's prices as it has not shown itself to be a reliable deliverer of earnings per share growth over time. With that said, however, Origin is trading at a discount to most analyst target prices and I expect its shares will rise again in the next 12 months.
