Camco: Shares soar as Carbon emissions group moves into black

Camco International’s (LON:CAO) shares shot up around 13 percent after financials as it swung into full-year profitability.

The diverse group is at the cutting edge of carbon emissions and carbon project development, but is also a project manager and has a world recognised green consultancy.

Over the past year or so, Camco has turned-around its business to re-focus activities, both strategically and operationally, in each of its regions. This morning’s financial results show that Camco is beginning to reap the rewards of the recent changes.

It said that it is now in a strong position across all its markets after the turnaround and it has since achieved is best performing year to date.

The group swung to profit in the twelve months ended 31 December 2010, making pre-tax of €9.6 million in the year, against a loss of €10.7 million a year earlier. Revenues rose to €30.0 million from €27.8 million. 

Camco more than doubed the amount of carbon credits issued to 8.1 million tonnes from 3.3 million tonnes a year earlier.

Net assets at the end of the year stood at of €61.2 million, up from €49.6 million in the previous year. Net assets also included €31.7 million accrued income from carbon projects which are registered and operational and expected to deliver cash in the next two and a half years.

"The company is in a strong position across all our markets after its 2010 turnaround and best performing year,” chief executive Scott McGregor said.

“Given the performance and focus of the business, we are in a prime position to seize the current opportunities, grow our projects business, deliver the current portfolio and build value for our customers and shareholders." 

The shares climbed 1.875 pence, 13 percent, this morning and at midday they were changing hands at 16.25 pence each.

Investors don’t yet appreciate the value of Camco's repositioning and the stock offers good long term value, Peel Hunt analyst Andrew Shepherd-Barron said.

While the results show signs that Camco’s turnaround is paying off, Shepherd-Barron reckons that there will be more to come in the future.

“Camco’s strategy of building a long-term project business, leveraging off its established market position, will not be reflected in earnings for a while. Today’s results show significant cash outflow in H2 2010, but this should reverse in 2011,” Barron-Sheppard said in a note to clients. 

The analyst rates Camco as a ‘buy’ with a 30 pence target price - which implies about 45 percent upside to the current price of 16.25 pence a share.

“We moved our fair value per share up to 37p from 28p two months ago to reflect positive valuations for post 2013 credits, Russian ERUs, US projects, cash, and the Khazanah joint venture,” the analyst said.

He adds: “We apply a 20% discount to this sum-of-the-parts (SOTP) value to reflect complexity and risk to derive a target price of 30p, which we retain.” 

Meanwhile Ken Rumph, clean-tech analyst at City firm Nomura, said: “the advisory business has been turned around with the aid of cost cutting and revenue growth from new and existing client groups.”

Rumph, who has no formal recommendation on Camco, notes that because of the way the group has to treat long term contracts, the results don’t give much of a guide to the progress or value within the business. 

He said that with earnings of 5.9 euro cents and net cash of 6 per share, Camco ‘should merit attention’ but here are still uncertainties that count against it.

Camco’s business is split into three distinct units. The first and biggest is the carbon division. 

It works with power generators and large industrial companies reduce their emissions of the greenhouse gas, often to meet regulatory requirements such as the United Nation’s Kyoto Protocol.

But instead of managing these projects for so-called “compliance buyers”, Camco will develop them “at risk”. This means working with the project owners and sharing the profits in much the same way a traditional property developer might. It will then earn its payback from revenues generated by the scheme, or bank valuable carbon credits.

The carbon business has a second leg: one that creates and commercialises carbon credits. But don’t confuse this with trading carbon credits. It actually makes the products the dealers buy and sell and it does so for its clients - those so-called “compliance buyers”. 

The market for carbon credits might be in its infancy, but Camco’s capabilities in this area are advanced. 

Away from carbon emissions, the group also invests in clean energy projects from agricultural methane in the US to industrial energy efficiency in south-east Asia.