Beijing Enterprises Can Unlock Value With More Consistency And Execution

Not all investors are comfortable with state-owned conglomerates like Beijing Enterprises Holdings (OTCPK:BJINY) (0392.HK) and that's okay. These companies can be opaque and complex, and managements will make capital allocation decisions that, at a minimum, aren't in the short-term best interests of shareholders. That said, Beijing Enterprises Holdings (or BEH) may be worth a closer look, as the company's foundation in gas distribution should offer ongoing growth and cash flow potential, while the water and waste businesses likewise can benefit from utility demand growth in China.

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Beijing Enterprises Can Unlock Value With More Consistency And Execution

Seeking Alpha: Can Natural Gas Development Drive PetroChina Further?

Having recently gone over the investment prospects for Italy's Eni (E) and China's CNOOC (CEO), I went into PetroChina (PTR) expecting to find another state-owned energy company trading at a discount to fair value. I think that is what I found, though deciding on the "right" EV/EBITDA multiple involves pretty arbitrary decisions of whether to add a half-point here or there that move the fair value quite a lot. I think PetroChina is undervalued today if it can deliver the mid-single digit EBITDA growth that analysts expect, but significant reserve potential has to be viewed in the context of rising production costs and a significant degree of interference from the government at all levels of the operation and end markets.

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Can Natural Gas Development Drive PetroChina Further?

Seeking Alpha: Gazprom's Discount Seems Extreme

I can understand why investors may not be elbowing each other aside to buy shares of Gazprom (OGZPY.PK). Gazprom is controlled by the Russian government, and while it is a major source of Europe's natural gas supplies, Western oil and gas companies are hard at work boosting production in areas like the North Sea to reduce that dependence. It also doesn't help matters that Gazprom reports financial results on "Russian time", with March quarterly IFRS results only just reported in the first week of September.

And yet, we're talking about a company that produces 17% of the world's natural gas and holds a similar percentage of the world's natural gas reserves. We're talking about a company that literally monopolizes Russia's gas exports and represents a major source of energy to Europe. We're also talking about a company that will likely begin exporting natural gas to China in the future, and could ultimately supply even more of the world's gas needs.

Trading at approximately 2.6x 2014 EBTIDA estimates, Gazprom's valuation seems to already incorporate some rather sizable doubts about the company's ability to improve domestic pricing, control production costs, and support rising dividend payouts. While Gazprom shares are not appropriately for investors with low appetite for risk, the shares do seem undervalued even by the stressed standards of Russian energy companies and offer more than 40% upside from today's levels.

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Gazprom's Discount Seems Extreme

Investopedia: New Gas Prices Help PetroChina, But Multiple Challenges Remain

Not unlike Petrobras (NYSE:PBR), PetroChina (NYSE:PTR) finds itself continually put into losing situations by its government. The Chinese government controls the prices at which PetroChina can sell natural gas and refined products like diesel, but cannot control the global cost of crude, nor the cost of producing oil, gas, and refined products. Couple that with aging fields, rising prices, and lower returns on capital, and PetroChina is in a difficult position.

Although that's a serious backdrop for the company, it's one in which management has always operated, and generally operated pretty well. Although aging fields in China are a concern, the company has been expanding its overseas production options and the development of shale and other unconventional resources in China could offer production growth. All told, PetroChina looks a little too cheap today and offers decent capital appreciation potential and a solid dividend.

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http://www.investopedia.com/stock-analysis/070313/new-gas-prices-help-petrochina-multiple-challenges-remain-ptr-pbr-ceo-snp-choly.aspx

Commodity HQ: A Deeper Look At China's Commodity Industry

Although the geographical size of China is perhaps not that difficult for North Americans to appreciate, their population is another matter. As China has become the second-largest economy in the world, it is without question transformed into an enormous force in the world’s commodity markets; so much so, in fact, that the recent commodity supercycle is now generally seen as a byproduct of China’s emergence.

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A Deeper Look At China's Commodity Industry

Commodity HQ: A Deeper Look At China's Commodity Industry

Although the geographical size of China is perhaps not that difficult for North Americans to appreciate, their population is another matter. As China has become the second-largest economy in the world, it is without question transformed into an enormous force in the world’s commodity markets; so much so, in fact, that the recent commodity supercycle is now generally seen as a byproduct of China’s emergence.

Please read more here:
http://commodityhq.com/2012/a-deeper-look-at-chinas-commodity-industry/

Investopedia: PetroChina As Much About Politics As Performance

There are plenty of energy companies around the world that are partially owned by national governments, but the influence that those governments have can vary considerably. Statoil (NYSE:STO) and Total (NYSE:TOT) encounter relatively little direct interference, while the involvement of Brazil's government in the operations of Petroleo Brasileiro (NYSE:PBR) is considerably greater.

Even further along the spectrum sits China's PetroChina (NYSE:PTR). Although PetroChina is one of the world's largest oil companies and generally well-regarded for its corporate governance, there are no illusions about the extent to which the Chinese government calls the shots. The question for investors, then, is whether that constant "management" (or interference, depending upon your perspective) strips away from the value of this company's stock.

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http://stocks.investopedia.com/stock-analysis/2012/PetroChina-As-Much-About-Politics-As-Performance-PTR-PBR-STO-TOT0321.aspx

Investopedia: A Win-Win For Chesapeake and BHP?

Whenever a significant deal is announced between two companies, there is an immediate interest in figuring out which company got the best of the deal. When looking at Monday's transaction between BHP Billiton (NYSE:BHP) and Chesapeake Energy (NYSE:CHK), investors should keep an open mind with respect to the notion that maybe both parties are getting something they need out of this transaction. 

The Terms of the Deal
In the deal announced Monday evening, Chesapeake achieved its stated goal of selling its 75% interest in the Fayetteville shale, a gas-rich area extending across Arkansas. Chesapeake is selling this asset base to Australian mining major BHP Billiton for $4.75 billion in cash, and the two companies will execute a service agreement to assure a smooth transition in operations.

BHP Billiton is acquiring about 2.5 trillion cubic feet (natural gas equivalent) of proven reserves, with a total potential reserve base of maybe 10 trillion cubic feet. The deal also includes related midstream assets, but the companies did not provide a breakdown of value assignment in the press release.

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http://stocks.investopedia.com/stock-analysis/2011/A-Win-Win-For-Chespeake-And-BHP-BHP-CHK-XOM-HK-BP-PTR-ECA0224.aspx

Buffett And Brasil Foods? If Only...

Brasil Foods (Nasdaq: BRFS) jumped on Friday on the rumor that Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) started buying shares and aims to hold 5% of the company.

I have my doubts about this one.

The rumor appears to be coming from Sao Paulo's Valor Economico – a joint venture between Globo and Abril (two of the largest media companies in Brazil) and one of the largest business-oriented papers in the country. So it is not as though this is coming from a paper that routinely publishes stories about alien abductions or Kim Kardashian's latest boyfriend.

That said … well, let's say I have my doubts. The story talks about “fund managers” from Berkshire visiting Brasil Foods a week or so ago, and then the company buying in the wake of those visits. Perhaps this is an artifact of translation, but I think we all know that Mr. Buffett doesn't exactly employ “fund managers” as we commonly think of the term. “Company representatives/executives?” Sure, why not. But “fund managers”? I don't think so.

And now there's a story on Bloomberg quoting a Brazilian investment manager talking about how people are speculating that Buffett/Berkshire will ultimately buy 5% of the company. To be fair, he's not claiming to have any first-hand knowledge himself, but I get suspicious when the only source for a story is “speculation”.

Now don't get me wrong – I would be thrilled to hear Warren Buffett talking up and buying up Brasil Foods. My history with this stock goes back to Sadia and the disastrous currency speculation fiasco that led it to accept a merger with Perdigao. Even though I'm still down quite a bit from peak valuation, I have a nice profit here and I think the company can continue to thrive. After all, there's a long-held trend in history that higher household incomes go hand-in-hand with more meat consumption and Brasil Foods is a very cost-effective meat producer with an excellent export business.

On top of that, this would be a pretty solid Buffett-like way to play the growth in the emerging markets. Let's be honest, Buffett is not going to buy some crappy Chinese shell company headquartered in the Caymans and audited by an accounting firm operating from Malawi. If Buffett is going to play emerging markets, it's going to be in relatively stable and well-run businesses – like his prior involvement with PetroChina (NYSE: PTR). So, as one of the world's emerging powers in protein, with large domestic and export exports, and a good local cost advantage, Brasil Foods makes some sense.

On the other hand, Brasil Foods is not shockingly cheap and there is the risk not only of recurrent inflation in Brazil, but global trade hangups (like Russia's stated goal of becoming self-sufficient in chicken and periodically banning imports from certain countries). Now Buffett does not always subscribe to other people's notions of “cheap”, but I'm not convinced Brasil Foods meets the Buffett margin of safety requirements.

Whether Buffett agrees with me or not, I'm likely to hang on to these shares for a while. After all, I like it for the same reasons he presumably would – a well-run emerging markets company with low costs and high leverage to rising global standards of living, coupled with a good play on rising on food costs (assuming that the company can continue to pass on higher grain costs and so on).

Buffett involvement or no, I would BUY shares of Brasil Foods.

Disclosure: I own shares of BRF Brasil Foods

Petrobras Stuck In The Middle

At first glance, these should be great days for Brazil's energy giant Petrobras (NYSE: PBR). Not only are oil prices heading higher, but Petrobras has privileged access to some of the largest oil fields known today. Unfortunately for PBR investors, there is a great deal of skepticism regarding management's capabilities, and this quarter will not help ease those concerns. 

A Quarter That Does Not Hold Up
At first glance, it would seem that Petrobras had a solid third quarter. After all, net income was up 17% from last year. While revenue was up 14% from last year and up 2% sequentially, EBITDA was up 1% and down 1% for the same respective time periods. A lot of that seemingly strong net income number was fueled by a currency benefit, making it a low-quality beat.

Moreover, some worrying details were in the numbers. Production was up just 1% from last year (and down 1% sequentially), and although this was not a surprise (management discussed this earlier), it marks another entry in this management's history of over-promising and under-delivering on production growth guidance. Even more concerning, though, was the 8% increase in domestic lifting costs (up 1% from the Q2). In other words, the company is not pumping as much as it should, and it's costing more to do it.

Please follow the link for the full piece:
http://stocks.investopedia.com/stock-analysis/2010/Petrobras-Stuck-In-The-Middle-PBR-COP-SU-RDS.A-RDS.B-CEO-PTR1115.aspx

China's Potash Hypocrisy

If nothing else, China has chutzpah. China's government put out a statement early on Wednesday indicating that it was paying "close attention" to the possibility that BHP Billiton (NYSE:BHP) would succeed in its bid to acquire Canadian fertilizer giant Potash (NYSE:POT). In mentioning that a so-called BHP potash monopoly would "harm global interests" and that prices are already "unbearable" for Chinese farmers, it would seem that this is a not-so-subtle shot across the bow for not only BHP, but perhaps Canada as well. 

Given that BHP Billiton has a significant stake in Chinese potash company China Sinofert, China actually does have some influence in this process and could certainly apply pressure to BHP through that investment. Moreover, there is still the possibility that a Chinese investment fund or company could make a competing bid for Potash - even as large Chinese companies seem reluctant to commit to much interest in such a move.

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http://stocks.investopedia.com/stock-analysis/2010/Chinas-Potash-Hypocrisy-BHP-POT-SNP-PTR-ACH-BYDDY-LYSDY0916.aspx

Hurry Up And Wait For Petrobras Investors

These are interesting times for current and potential investors in Brazilian energy giant Petrobras (NYSE:PBR). Everybody concedes that the massive offshore finds that BG Group announced in 2006 (the Tupi field) and Petrobras announced in 2008 (the Jupiter field) will be transformative for Petrobras and Brazil as a whole. Since then, however, there has been a fair bit of confusion over how Brazil would manage these finds and what exactly Petrobras' role would be. 

Even with most of those questions answered, however, there is still a pause surrounding Petrobras. It is clear that this giant company is going to have to launch significant financing efforts, including a share offering, and many potential investors are waiting on the sidelines until they get better clarity about the size and timing of the deal. 


For the complete article:
http://stocks.investopedia.com/stock-analysis/2010/Hurry-Up-And-Wait-For-Petrobras-Investors-PBR-CVX-COP-PTR-HAL-RIG-CAM0818.aspx

AgBank Of China IPO Not As Easy As ABC

Reading about all of the angst and concern about the IPO of the Agricultural Bank of China, I am reminded that waiting for the hammer to fall can be worse than the blow itself. A lot of market-watchers have made this event into an be-all/end-all referendum on the state of China's market. The truth, though, is that the long-term impacts are all but certain to be far less earth-shaking. 

A Big Deal, But ...There is no doubt that the IPO of AgBank is a major event. This is the last major bank in China to go public, it is a very significant lender in the country (particularly in rural areas), and the performance of the stock is going to tell us all something about the appetite for Chinese shares. It is also true that you do not see a $23 billion IPO very often. (For more, see IPO Basics Tutorial.)

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http://stocks.investopedia.com/stock-analysis/2010/AgBank-Of-China-IPO-Not-As-Easy-As-ABC-CHL-BIDU-PTR-YGE-GS-MS-ADM-FXI-EWH-XPP-FXP0630.aspx

This piece originally had China Mobile named as China Telecom. We'll be getting that fixed soon...