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07-Oct-2011
WHK, JUPITER ENERGY
Who says accounting is for dullards?
ASX Code WHG, JPR
Most companies have fallen in the past six months, but accounting services provider WHK Group has been falling heavily for the past eight - dropping more than 22 per cent, in the process providing investors with a massive 14 per cent yield at current prices.

This is interesting, because you would think that a company that has highly defensive earnings, has reduced its debt to manageable levels, and has a new high powered chief executive, with big ambitions to boot, would be doing well.

As it stands, at 81 cents, WHK (ASX code WHG) trades on a price/earnings ratio of close to five times, which means the market thinks it has no growth left in it.

Whatever you think of its growth prospects, it's a stand-out in the hunt for income, paying out over 70 per cent of its earnings in dividends. WHK's prospective yield is 9.8 per cent, which rises to 14 per cent when you include franking credits.

With small companies management is (almost) everything, and newly installed chief executive John Lombard does have a mountain to climb. He will need all his experience to turn WHK around.

Previously he was a management consultant and then a senior executive in software logistics group SAP's European operations.

At the very least he has to do is orchestrate WHK's 15 or so separate accounting practices into playing from the same score - which means sales growth. Culture in accounting is hard to change.

One fundie betting he will do this is Celeste Funds Management, which increased its stake in August from just over 5 per cent to a touch over 6 per cent.

“You can't just click your finger (to achieve change)” says Celeste analyst Paul Biddle, “but John is not an accountant and he thinks like a software engineer, which is: if we don't grow the business at 20 per cent a year, we're losing market share.”

One thing in Lombard and WHK's favour are the future of financial advice (FOFA) reforms which have the aim of ensuring that the consumers who pay for advice are receiving that advice and not being pushed into products that are aligned with a financial planner.

Accountants, who are remunerated based on fees, should in theory be in a position (once they are licensed) to give financial advice to their clients, many of whom would have significant portfolios.

Lombard has only been in the job for three months, so it is too early to tell how he is going. If he gets it right, investors won't just be walking away with big dividends.

One hand clapping Jupiter on

At the other end of the (risk) spectrum is a company that we have mentioned a couple of times in this column, would-be Kazakhstan oil and gas producer Jupiter Energy (ASX code JPR).

The company has just announced that has been granted production licences for two of its wells by the Kazakh Central Development Committee. This is big news for the oil and gas minnow, and although its share price climbed almost 10 per cent yesterday, at 62 cents, it is about half where it stood less than six months ago.

This brings to mind the sound of one hand clapping, rather than the sound of music, which is what chairman and chief executive Geoff Gander would rather hear. In another life Gander was a Perth based IT entrepreneur.

He says that the company should be in production by the end of this year, which seems very conservative to long-time observers of the company.

“In Kazakhstan you don't over promise, but we've definitely broken the back of the process and we are very cheap. It's my job to show why we're such good value,” he says, without going into detail.

Perhaps the company's much anticipated listing on the AIM market (and subsequent capital raising) will help that “value” to materialise.

The Kazakh discount is definitely at play, according to Johan Hedstrom, the oil and gas analyst at Bell Potter, who values the stock at $2.42, almost four times its current price.

Jupiter's value is mainly based on Jupiter's “2P” or “proven and probable” oil reserves. This means it's a good bet it has at least 24 million barrels of oil in its two wells. Based on its enterprise value (its market capitalisation less cash) of $68 million, the company is worth $2.83 per barrel of known oil, according to Hedstrom.

This ratio is the cheapest on the market. Beach Petroleum trades at $17 a barrel of 2P reserves, while Woodside Petroleum is on $20 a barrel.

This company will always trade at a discount to the big guys, but the discount should come in as production commences.

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