Bouleversee wrote:I can never get my head round this sort of legal action.
That's because such litigation is primarily for the benefit of the lawyers who promote such action. It's one of the many undesirable imports from the US, where such class actions are a thriving industry. Fortunately, English law is less generous to such claimants than many US laws.
Nevertheless, I personally see most such actions as unethical, as they usually result in one small group of shareholders (and their lawyers) being enriched by extorting money from the large majority of shareholders who aren't in the group.
However, in purely practical terms I can't see it representing any significant threat to a company the size of PFC. They will almost certainly negotiate a nuisance settlement of maybe £50m - £100m, which is in reality neither here nor there.
Likewise, I view the reaction to David Lufkin's guilty plea as overdone. For a start, neither the company itself nor any of its current employees have even been charged, let alone convicted, and the SFO's track record is pretty poor in similar cases.
There's also been talk of reputational damage if there are further convictions, but again I suspect the harm that would result from such convictions has been overestimated. It's an unfortunate fact of life that nearly all companies that trade in sunny places full of shady people have to indulge in a certain degree of corruption simply to keep trading there. I'm quite sure that people in the oil industry are far more concerned about whether the prospective partner can do the job competently and at a decent price than whether they've greased a few palms here or there.
In the meantime, the yield now appears to be over 7%, with dividend cover of about 2.7.
So although it's certainly not a widows and orphans share I've concluded that at around £3.75 the upside outweighs the downside and it's too good a bargain to be missed. To be perfectly honest, I'll be happy to sell if, as I anticipate, the price makes a significant short term recovery, but if not I'll be equally happy to hold on a long term basis, as I think that yield looks pretty safe for the foreseeable future.