Record production pushes Premier Oil’s guidance higher

We’ve taken some risks in aiming at a 5pc sustainable yield, but this pair are at least paying off

PREMIER Oil has raised its full-year guidance after production in the first half of the year jumped 35pc to record levels.

The oil and gas explorer also said it expects its Catcher project in the North Sea to be more productive than originally thought when it comes onstream later this year. Premier expects the project to produce 60,000 barrels of oil equivalent per day, 20pc higher than previous estimates, after test flow rates were “above original prognosis”.

Full-year production guidance, meanwhile, has been raised to between 75,000 and 80,000 barrels of oil equivalent per day, up from 75,000.

Premier’s cash flows in the six months to June 30 were $292m (£228m), up from $108.7m in the same period of the previous year. The company was able to reduce net debt to $2.74bn at the end of June, from $2.77bn at the end of last year.

Earlier this week, it announced the sale of its 33.8pc stake in the onshore Wytch Farm oilfield for around $200m.

Hold

PLEASING half-year results from specialist lender Onesavings Bank underscore Questor’s view that bad news for Britain’s legion of amateur buy-to-let investors is good news for a niche lender positioning itself to serve the professionals.

Out go the building societies which exploited the fashion for buy-to-let as a way of growing their assets in the post-crisis famine. (Nationwide Building Society, for example, has just reported a

53pc year-on-year fall in gross buy-to-let lending.)

Instead in come focused lenders like Onesavings who are better equipped to underwrite loans for property businesses.

OSB’S profits in the first half of 2017 were up 20pc and lending 21pc. The same period in 2016 included the transaction boom ahead of the stamp duty surcharge, so yesterday’s numbers somewhat understate the power of OSB’S growth. Nor has the growth arisen from a dash to cut rates, as seen elsewhere in the mortgage market: in fact OSB’S net interest margin has improved. Credit quality, too, is improving.

We tipped this as a buy on Nov 18 at 322p. If dividends come in on analysts’ forecasts (27p for 2018; 29p for 2019), we will be achieving a yield of 9pc on our original investment. And a nice gain. Questor says: hold

Ticker: OSB

Closing price: 397.4p Corporate bonds: Premier Oil and Provident Financial Premier Oil’s half-year results, also yesterday, were positive on a number of fronts. For the purpose of this portfolio – we tipped the bonds a buy at 81p on Oct 14 2016 – progress on debt reduction is important. So the $200m (£156m) disposal of the Wytch Farm facility near Corfe, Dorset, is as noteworthy as the increased production and exciting discoveries in Mexico.

The 81p price we paid obtained a running yield of 6pc and a yield to maturity (that’s an annualised return which includes the capital gain or loss made when your capital is repaid at maturity, in this case in 2021) of 10.9pc.

Premier’s bonds closed last night at 90p per £1 face value.

On a related topic, the stock market’s big mover this week was FTSE 100 doorstep lender Provident Financial, where a shock profit warning sent shares down by almost 70pc on Tuesday.

This portfolio owns neither shares nor bonds issued by Provident, although the latter are especially interesting to income-seekers and worth a note.

Provident has four tranches of “retail bonds” (stock market listed bonds where private or “retail” investors can participate) in issue. These mature in October this year, October 2020, September 2021 and October 2023. They pay interest (coupons) of 7pc, 7pc, 6pc and 5.125pc respectively. As seen in the volatility of Premier’s bond prices during the travails of that business, bonds are largely an all-or-nothing bet. You either get your promised interest and return of capital if you hold to maturity, or, in a disaster, you can expect nothing.

Hence Tuesday’s share shock had violent repercussions for Provident’s bonds.

Take the 5.125pc 2023 issue. It began the week trading at 107p per £1 face value. That price gives a running yield of 4.8pc and a yield to maturity of 3.8pc.

Tuesday’s news blew the price down 40pc to a low of 64p.

This was manna for some investors who seized on the opportunity to buy an income stream – from a business which, whatever the news, remains profitable – at a highly attractive price.

In the first hour of trading on Wednesday at least four small purchases of £10,000 or less were executed at under 70p. Someone invested £6,500 at 65.25p, for example, according to stock exchange records.

I suspect this person is pleased with themselves: at that price they have a running yield of 7.9pc and a yield to maturity of 13.8pc.

By yesterday morning the price had recovered to 80p. Even there, you have a running yield of 6.4pc and a yield to maturity of 9.6pc. There was steady buying at that price.

This portfolio is for now fully invested (the complete list of holdings is published on the first Friday of each month – you can see it here next week) and so we are not adding.

But it shows the little-followed bond market is certainly something to watch if you have a need for income.

Onesavings Bank Secure and profitable growth through exploiting policy change