The Investment Column: Nothing ventured, nothing gained for oil minnow

Marylebone Warwick Balfour; Oasis Healthcare

Our view: Buy

Share price: 710.5p (-7.5p)

The world's major oil producers may be winding down their operations in the North Sea, but drilling for black gold is still proving lucrative for a clutch of smaller British players.

One of these independents is the Aberdeen-based minnow Venture Production, run by the former Schroders banker Mike Wagstaff.

After offloading its fields off Trinidad last year, Venture now concentrates exclusively on exploiting isolated patches of oil and gas left in the North Sea.

These are too tiny to make drilling cost-effective for the big players. But Venture's costs are much lower, giving it financial elbow room in which to work.

Impressive interim results yesterday showed that surging production and tighter cost control helped Venture into the black in the first six months of this year.

Profits before tax were £97.7m, against a £5.9m loss last time. The turnaround was driven by an 80 per cent jump in the number of barrels of oil equivalent Venture pumps each day. After buying the North Sea gas group CH4 for £153m last month, Venture now produces about 50,000 barrels each day.

Yesterday, Venture lifted its estimates for its average production rate across the entire year to between 41,500 and 43,000 barrels. That easily outstrips the 29,864 barrels it produced on an average day in 2005.

Mr Wagstaff told investors to expect Venture's £216m debts to be cleared by the end of next year, and for the size of the business to have been doubled by 2009 at the latest. Its market value was almost £936m last night.

Venture has yet to pay a dividend, but its shares have climbed from less than 150p at the start of 2003.

Trading at seven times expected 2007 earnings, they look startlingly cheap compared with the other five oil and gas companies in the FTSE 250, which trade at an average of 13.5 times.

Now that Venture is generating more cash than it spends and has revenues from a number of sources, it warrants a closer look. Buy.

Marylebone Warwick Balfour

Our view: Hold

Share price: 211p (+3p)

Marylebone Warwick Balfour shareholders woke up to a nice surprise yesterday after it unveiled a plan to return £30m in cash.

That follows a 40 per cent rise in the shares since the start of the year and the sale of its West India Quay hotel.

News of the return accompanied first-half results showing revenue 18 per cent higher at £96.1m. Profit before tax improved to £1.3m from a loss of £9.7m. The group has benefited from the strength of its niche hotels, Malmaison and Hotel du Vin, as more holidaymakers chose to stay in the UK.

Occupancy across the two resilient brands rose to 79 per cent despite increased capacity at key locations. MWB plans to increase the number of Malmaison and Hotel du Vin hotels to 27 by mid-2008. That expansion will not require additional funding.

MWB also reported strong growth in its business-exchange business while it stabilised sales at the Liberty department store. The store plans to create a global luxury goods brand based on the Liberty of London brand.

Yet despite its growth prospects, MWB is highly leveraged and has few listed peers to gauge its valuation.

House-broker KBC Peel Hunt forecasts equity attributable to shareholders, after management incentives, of 188p for this year and 236p next year, compared to its current share price of 207p. However, the broker sees an upside of up to 73p on its expansion plans.

However, with three distinct lines of business and £158m of debts, investors should hold for now.

Oasis Healthcare

Our view: Buy

Share price: 29.5p (+1.5p)

For much of this summer, shares in the dental practice group Oasis Healthcare were buoyed by takeover talks with three suitors.

The firm dismissed all three offers - the highest of which was pitched at 36p a share - as opportunistic. The bidders included rivals Associated Dental Practices, which has built a 13 per cent stake in Oasis, and Integrated Dental Holdings.

The Norwich firm is in much better shape than two years ago when Stephen Lambert was parachuted in as chief executive to turn the business around after it had run up big debts through rapid expansion. The latest results for the year to 31 March for the 130-strong chain showed losses cut to £366,000 from £2.9m on revenues of £82.5m. Debts have also become more manageable at £37m as cash flow has improved.

Mr Lambert has overhauled the organisation, creating clusters of dentists to allow decisions to be made locally, and focused on recruitment and streamlining the pay structure. In the spring, he faced down a pay revolt by around a 10th of the group's 500 dentists.

Oasis has just won tenders for four practices (16 surgeries) which are expected to generate an extra £2.1m of annual revenues. It is also making good progress with the new NHS contracts introduced in April. While chances of a takeover have receded, the firm's prospects look good. Buy.