Iraqi Kurdistan oil producer Genel Energys (LSE: GENL) string of bad luck continued through half-year results today as the company reported poor performance metrics across the board. Revenue plummeted 54% as production fell and crude prices continued to struggle. All of this led to net debt increasing to $236.8m, a full 3.6 times EBITDAX.
While some risk-hungry investors may see this string of bad news and view Genel as a possible bargain in the oil industry, I would caution restraint. The company was hit by a series of downgrades to reserves last year. Coupled with falling production rates, this leaves Genels future less than rosy.
And although the company has now received payments for its oil from the Kurdish government for nine months in a row, conflict in the area always has the potential to end this. Located in a rough neighbourhood with production falling and debt increasing, Ill be looking elsewhere for bargains in the oil & gas sector.
No magic for Merlin
This yearhas been kinder to Merlin Entertainment (LSE: MERL), the owner of Legoland, The London Eye and Madame Tussauds. Although terrorist attacks in Europe harmed attendance at those locations, increased footfall at other attractions across the world were enough to eke out a small 0.9% rise in pre-tax profits.
The main driver of Merlins future growth will likely be the Legoland parks the company is opening at an impressive pace across the US and Asia. Considering the 3.3% like-for-like revenue growth and overall 11.1% bump in sales at these attractions, it makes sense to focus on these parks. However, the company still hasnt been able to escape the slowdown in visits to Alton Towers following accidents that led to a 7% fall in revenue from its resorts and theme parks division.
Given the wide gulf in performance at Merlins main divisions and lack of runaway growth, the companys valuation of 23 times forward earnings seems steep. This is particularly true given the cyclical nature of tourism companies and Merlins low 1.4% yielding dividend. Challenges in key markets and a lofty valuation are enough to make me avoid shares of Merlin at this point in time.
Profits plunge
Merlin isnt alone in blaming high publicity terrorist attacks for tough trading conditions. Management of travel company Thomas Cook Group (LSE: TCG) pointed to a precipitous decline in travel to turbulent Turkey for a 5% overall decline in bookings this summer.
The company has done its best to send tourists to other locations but this wasnt enough to stop revenue dropping 8% and underlying operating profit plunging from 24m to 2m year-on-year.
With difficult trading conditions ahead in its core markets and the plummeting value of the pound likely to constrain UK holidaymakers budgets, the coming quarters could be tough for Thomas Cook. While an astonishingly low forward P/E of 6.7 may interest value investors, Thomas Cooks high debt and uncertain near-term growth prospects are enough to scare me away from the shares.
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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
