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Halyk Finance: ENRC: Why saying “Oops” is not enough




Halyk Finance


03 Apr 2013





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Since February 28th, when we downgraded ENRC stock to a ‘Sell’, it lost 29.1%. The bulk of the losses materialized over the last two weeks following the announcement of impairment charges and higher effective tax rate for 2012. Based on 2012 results and guidance for 2013, we updated our model to incorporate a steeper unit cost growth and higher capex assumptions. The stock remains subject to numerous risks of mostly governance nature. The management may need to admit the mistakes of the past and to explain what it plans to do to avoid them in future. The announcement of the impairment was the closest the company ever came out to saying “Oops”. But without a credible plan to dismantle the deeply flawed governance structure and to rebuild a new one, even a genuine apology would send the wrong message. We further lower our 12-month target price from 300GBp to 257 GBp, which at the last close price of 235 GBp translates into a ‘Hold’.

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