Share Name Share Symbol Market Type Share ISIN Share Description
Fortune Oil LSE:FTO London Ordinary Share GB0001022960 ORD 1P
  Price Change % Change Share Price Shares Traded Last Trade
  0.00 0.0% 10.50 0.00 01:00:00
Bid Price Offer Price High Price Low Price Open Price
0.00 0.00 0.00 0.00 0.00
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Oil & Gas Producers 233.14 164.63 8.00 1.3 272
Last Trade Time Trade Type Trade Size Trade Price Currency
- O 0 10.50 GBX

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del44: China was promoted as a growth story but making money has been fraught with woe. Fidelity fund manager Anthony Bolton tarnished his reputation launching an investment trust that ran into losses, and China-related shares aimed at Western investors have often disappointed - ending up acquired at low points. Even Warren Buffett is getting his fingers burnt as a Chinese electrical car maker he holds - BYD Co. - has plunged 40% amid a worsening outlook for the Chinese car market. Fortune Oil (FTO) is one such example in the London market I have followed for maybe 15 years; now in its end-game. The company is UK-incorporated but operates from Hong Kong, nowadays an investment holding company with interests in oil products and urban gas supply to China. It has always appeared a good growth prospect yet the stock has traded volatile-sideways. Board members are predominantly Chinese and the two founding brothers own a controlling 51% stake. Despite there being "independent directors" such a structure has likely deterred institutional investors and broker coverage, another reason the shares have languished. The nagging worry is that while this kind of company ticks certain rules of cricket, you never know when it might throw a googly. A well-timed, if oddly-structured, buyout offer Fortune Oil - financial summary Year ended 31 Mar (no forecasts available) 2009 2010 2011 2012 2014 (15 months) Turnover (£m) 192 276 139 123 262 IFRS3 pre-tax proft (£m) 18.1 26.1 12.2 7.7 49.4 Normalised pre-tax profit (£m) 17.4 23 6.7 6.2 -16.8 Normalised earnings/share (p) 0.4 0.5 0.1 0.2 -0/6 Cash flow per share (p) 1.5 1.3 1.4 1.3 -0.2 Capital expenditure per share 1 0.7 1.6 1.1 0.4 Dividend per share (p) 0 0 0.1 0.2 2.4 Net tangible assets per share (p) 3.9 4.9 4.6 7.5 13.2 Source: Company REFS. After the non-index shares more than halved this year from 14p to a five-year low of 6.3p, a cash offer of 10p a share is proposed by Fortune Dynasty Holdings, a British Virgin Islands company owned by two Fortune directors. With 56.91% of the shares in support, only 42% of the remaining minority holders are needed to achieve the required 75% acceptance level. The news release is quite sketchy; a formal offer document is expected from 14 January, it should be possible for a potential investor to find via Google (GOOG). What raises "takeover arbitrage" interest is a potential further 50% upside to the 10p basic offer, assuming Fortune disposes of its stake in Hong Kong-listed China Gas Holdings (Fortune previously divested gas interests to). This compares with Fortune's current share price of about 9.5p. To Western eyes, the near £200 million stake is the rightful property of owners; whereas the board proposes a "contingent valuation right" to a further 5p a share assuming the volume-weighted average price achieved in CGH over a 12-month period is above HK$11. Properly, minority shareholders are entitled to whatever value is realised, hence this seems a googly. The recent chart and statistics show CGH peaking around July at $16 then falling to about $12 where they trade on a price/earnings multiple near 21 times and yield 0.9%. Such a profile may be exposed to a shift in market sentiment, say if China has problems with its soaring debt. But CGH is one of the largest city gas companies in China, well-positioned to capitalise on the trend to urbanisation and natural gas usage. Long-term it should have excellent prospects (partly why it is opportunistic to buy out Fortune Oil after the share price drop?) and at last July's prelims Fortune said: "our shareholders will continue to have good exposure to this rapidly expanding market through a company where commensurate dividend growth is anticipated." On 13 August Fortune acquired a further 13.25 million shares at HK$14.8, taking its CGH stake near 935 million or 18.6%. Note 11 to September's balance sheet cited the fair value of the stake as £201.7 million equivalent, based on the then share price of HK$12.88. Overall net assets were £360.2 million or 13.9p a share with intangibles of just £370,000. Directors changed their tune when poised to bid Then on 1 September the Chinese government hiked gas prices by 20% (effectively ending a subsidy) which has contributed to the fall in CGH's share price. The tone of Fortune's 28 November Interim Management Statement turned worrisome, saying for example that the slowdown in Chinese growth and fall in oil prices "has increased our inventory risk"... "the slowdown in the growth of China's property market will reduce the rate of gas connections and associated fees in city gas concessions"... and "as a result of the possible uneven timing of distribution of dividends received (from investee operations) Fortune Oil will require careful treasury management in order to avoid future cash shortfalls." Fair to an extent, when oil prices are plunging, but in the words of the late Mandy Rice-Davies: "They would say that, wouldn't they?" when poised to make a cash offer. What irks is seeming potential for a transfer of value in the CGH stake, to the buyout directors (if CGH shares recover). And what might happen if a conditional average share price of HK$11 is not achieved? In pricing Fortune Oil shares at about 9.5p currently, the London market ascribes no value to this proposal whereas you'd expect to see Fortune trading say at 11-12p, all-considered. The return of value from CGH is therefore a key issue which may become clearer as the shareholders' meeting approaches - on or before 28 February. Shareholders are in a hard place - but could yet exact additional value to the basic 10p/share offer Their dilemma is no rival bid being likely given the elements of corporate control; and then a de-listing in March. Yet the buyout directors must still achieve a 75% majority and minority shareholders can express their views, especially if January's offer document still begs questions. If they are left aggrieved then the buyout directors run some risk, this gets picked up online as discontent simmers, to affect their reputations longer-term. So minority shareholders are not powerless. At 9.5p, Fortune Oil is therefore a "takeover arbitrage" situation to watch, also as a test of the conduct of Chinese business (listing in London). With a low chance of the deal falling through, a 10p basic offer to conclude next March and potential further return, the risk/reward profile is interesting.
alanadale: It absolutely stinks of sharp practice to take the shares out ‘at a substantial premium to the closing price of 6.32p last night’ at the absolute bottom of the cycle before the prospect of a dividend begins to weigh in, having one could almost say wantonly created the instability that drove down the share price in the first place by passing the dividend. It is precisely BECAUSE of the market’s fear of something like this happening the share price has underperformed so dismally. Why not make ‘an offer at a substantial premium’ when the share price had climbed to 9p which it most certainly would have done at the prospect of a dividend even allowing for the significant headwinds energy markets are facing. CGH’s margins will be impacted but it is still a cash business the Chinese government needs. Daniel Chiu and Ian Taylor are laughing all the way to the bank my faith in their probity grievously misplaced. I am surprised and disappointed that Frank Attwood has put his name to the deal.
alanadale: I have just sent this to Mr Attwood Dear Mr Attwood I should much appreciate a phone call to explain what the board was playing at in the presentation of the interims in failing to offer a comparable figure for profits after tax factoring out the windfall from the CGH deal? The board has resided over a 50% fall in the share price in the past six months; in the meantime the NAV judged by the CGH holding alone has appreciated some 20%. This is a damming indictment of its management of shareholders’ funds. The market has no confidence in the board because it has, through its actions, shown not the slightest concern for minority shareholders. There is now clearly a conflict of interest between the Concert Group’s interest and those of minority shareholders, the only concession to which has been the doubling of the shares offered in the staff bonus scheme based on the share price performance. However, the share price has now been driven down to such a low level as to make that measure meaningless. Or will a share price of 6.5p be the new benchmark to measure staff bonuses? I think we all appreciate that Fortune has been going through a delicate transformation. But the absence of honest guidance, of useful information to judge performance in a fast changing environment and what at times seems like perverse obfuscation feeds the impression of smoke and mirrors that has utterly destroyed confidence. From a personal perspective I see Mr Chiu and co sitting on a very tidy profit while I am nursing close to a loss on my investment over 20 years – having taken exactly the same risk. That does not seem equitable to me, indeed it is beginning to smack of sharp practice. Fortune in contrast to the vast majority of companies listed on the London Stock Exchange seems to feel it unnecessary to give meaningful forward guidance. That has to change. Sincerely
alanadale: Biffa, (17127) Fortune’s fall from grace has nothing to do with the oil price. Anyone remotely interested in Fortune knows full well that that the oil tab is a misnomer. Originally Fortune attracted investment for capital appreciation. We forewent a dividend for many, many years in expectation of the shares rising over time. In the event Fortune has been a great trading share but a lousy investment. The shares have traded more or less within the same range for the last decade. The board has to accept responsibility for this thoroughly unsatisfactory state of affairs and address it: why has there been no underlying appreciation in the share price in that time and why is it trading at less than a quarter of NAV? There are of course endemic issues: the lack of liquidity, the loss of a premium listing and rerating as an investment company. But that does not explain why the shares are trading at a quarter of NAV. At that kind of discount one would normally imagine something fishy going on; investment companies usually trade at close to NAV. In Fortune’s case it doesn’t because Fortune is controlled by the Concert Group which effectively ‘owns’ the capital appreciation. We, the minority shareholders, having no control over when the underlying assets may or may not be realised, only receive value through dividends. At present there is no dividend and the board has given no guidance on what that dividend might be, so the share price is at sea. It is the management’s cavalier attitude to the market and minority shareholders that is the root of the problem, viz Mr Tee Poon’s famous remark that the company was not responsible for the share price; well, in any self respecting ‘open’ Western company that remark alone would have earned him his P45. Market acceptance is built on profit consistency and predictability. This has traditionally been very difficult for Fortune given the market it has been operating in where size is everything. The board was correct to concentrate on building up the company and in the process withholding a dividend and I believe the decision to piggyback on CGH was sound. But then, having made the breakthrough, they’ve blown it and the sooner they own up to a totally unnecessary extension of the period of uncertainty the better. Mr Chiu and co still haven’t got it that they owe a responsibility to minority shareholders to see we get fair value. They could mitigate the damage by declaring a special interim dividend and indicating the final (without repeating last year’s fiasco of predicting a dividend and then passing it.) They should also provide profit forecasts – the business has settled down sufficiently now – as every other company does. We should all be pestering the board with demands for greater transparency as a way to gaining the market’s trust and to measure performance. If the management has any intellectual honesty it should have the humility to accept that the reason for the dire share price is the market’s scepticism that it is acting in the interests of minority shareholders and it should act to allay that scepticism.
via con: Del , a good point but I´d contend that FTO´s stake was done because Ming Hui Liu could see the writing on the wall, and asked his mate Danny to help him maintain control at the company he had founded. As for our little FTO having the ability to swallow up CGH on the cheap, was optimistic to say the least. Don´t forget Ming was under house arrest and "his" company´s share price was under attack, so I think Ming was very well aware of the potential iminent threats and quite naturally looked for allies, one obviously was our Danny and FTO. The result of which became the JV once the enemies appeared at the gates As for CGH being a strategic investment I find that very unlikely. If anything you could say the two companies are competitors. The only strategical investment case would be if CGH had offered jvs in its upcoming operations. Before, during and since the CGG JV, FTO have had zero from CGH, so where´s the strategy ? What has FTO gained thus far from saving Ming from the Chinese ? (not including the share price rise, although that´s on paper, as we haven´t seen a penny of it yet). And moreover the company is now less investable, being classed as an investment vehicle due to Danny saving Ming´s company from the Chinese. Wow thanks Danny but what about us ? We´ve only lost, then lost, then lost - Lost premium, lost rights, lost the dividend. Well if that´s a strategy, then I´m lost for words
rjefortune: I have read with interest the many posts on this and other boards of the past week since the results were announced. I was like most was taken back by the decision to not make a dividend payment for this period and very disappointed to see our share price fall over 20% since. I have been a FTO shareholder for around 15 years and have increased my holding often since. I believe we have a excellent company with good management The board have done a great job in increasing value but are lacking in promoting the company for PI shareholder benefits. I have spent some time looking at the results and have concluded the following: The share of businesses that make up fortune oil should make profits in the current year of around £61 million. This is calculated on CGH contributing £37.8 based on projection of growing profit. 15% increase on last years profit on trading and Bluesky and last years profit being repeated on the remaining activities I generally consider, when investing, a good long term rate of return is around 10% or a price to earnings of 10. This would value FTO at £600million. I then looked at our major asset CGH, I expected the accounts to reflect the value of our investment in CGH since it is a quoted company and shares are easily traded. However the accounts value CGH at" fair value" which is calculated at £172.9 million based on a share price at 31/03/14 of 12.12 HK$ This information can be found on page 108 of the annual report I calculated our asset to be worth £513million based on the share price 12.12HK$, So" fair value" therefore is approx 33% of the market value! Since 31/03/14 the share price of CGH has increased further and calculating the value on a price of 15.1HK$ this values our holding at £640million or a "fair value" of £215million and increase in "fair value" of £42.5 million on four months , if repeated over the year this would increase "fair value" by £127.5million needing a CGH share price of 21.06 HK$ I don't think this is unrealistic given there growth potential and demand for their shares. This could be very significant as we would again be reporting earnings which would warrant a much higher share price for FTO. Which ever way you look at it FTO share price should be significantly higher, so why is it not? My personal view is that it need to be promoted more, when it is i.e. recently in the Investors Chronicle and a couple of years ago in the Daily Mail the share price moves quickly upwards. We have a good news story to tell. The company does not seem to want to promote this may be because it is not in their interests but it is in our interest, the PI shareholders. It is time to stop putting the downers on this share and promote the benefits of exposure to a fast growing company with fast growing earnings how many companies can say there earnings have grown in excess of 1000% in a year? If twitter that's share price is soaring and gets valued 200 times earning based on the fact of its potential earning power, why is FTO which has exposure to a equally huge market is only valued at 1.25 times earnings. It may be unconventional but in this case it is up to the PI shareholders to promote this company and get its share price re-rated to a more realistic level. I will be lobbying various boards, social media and journalists with this story I urge you all to do the same
catscats: very interesting to see the different views on this BB...and it just goes to show the investor confusion as to what the direction of this company is (and whether it is operated in the best interests of minority shareholders) my view is that when it comes to doing deals in the fast evolving consumer gas market in China nobody is quite sure of how things will turn out...there are still plenty of risks with, the gov controls the price they pay for gas and connection fees could taper off (half of earnings)... the bottom line is that share price of CGH has done better than anyone expected and this has not been reflected in FTO's share price. I expect DC thinks about that everyday but unless FTO actually sold the stake in CGH (highly unlikely) then the value will not be realised (quickly). I think new buyers (and i am sure lots of funds have FTO on the radar) will come as time progresses and they see that the CGH shareprice is not just a Quindell like spike...i am not suggesting that this company is anything like QPP but as they always say share prices can rise as well as fall...
firkin: Pieball So you are saying Fto is worth 30p? How can you buy something for 9.6p that you reckon is worth in reality 30p. Well the answer is easy. Because no one is going to buy them off you for 30p or anywhere near that. So how can the market value, 9.5p be lifted? 1 The yield is low it would help if the dividend policy was changed to a progressive one and started at 50% instead of 20%. 2. The intentions of the board need to be more transparent. 3. did Mr Tee really let the cat out when he was reported as thinking reverse takeover? Or was the reporter mishearing. 4. There are some very good businesses in the Fto portfolio but by far the biggest is the cgh holding. To have made a major investment early December at 8.4 HK$ that is now 11.6 is amazing. But what has it done for Fto share price?? Well it has made Fto a strong hold but has it made it a buy with all the unknowns such as mr Chiu,s intentions?
firkin: Del44 You're probably correct. I may have misunderstood the detail. However this still leaves the issue of whether or not FTO's actions will result in dilution or not. Have you a view on this? To be honest I thought the return of cash of 2.36p was a signal that the board feel confident that the main deal is more or less done. The share price deserved a lift on that basis. In the event today the market response seems tardy to say the least when you look at the total value created by the deal. OK CGH 384 price has drifted but there is still great value that's not been recognized by Mr Market. Great patience has always been needed so far as FTO share price is concerned.
biffa18: hey wheres jc iv missed him telling me iv missed the boat't look like iv missed much while iv been getting the real boat ready for the new season, mind you there's a distinct resemblance between the fto share price and the current weather !
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