ShareHub Hotlist 2019 Review – Week 24

Week 24 and the DOW is nearing all time highs again. And that’s without a firm China Trade deal signed…. yet. The market is certainly getting excitable again. After several rinse and repeats from 26500 down to 24000 levels, the 10% DOW swing is becoming the new monthly bet. Go back a decade or two and you’ll find a 10% gain on the DOW would normally take or be expected to take, about 2 to 3 years. In this casino, it can happen in just a few days. The main contributor to the markets new verve has more to do with rate cuts and stimulus than China Trade solutions. A few weeks ago, the FED Reserve moved to a more dovish/rate cut friendly position and whilst that is by no means nailed on, the recent poor US job data combined with a global trend to cut rates, has now significantly raised the odds on a US rate cut happening possibly as early as October 2019. Super Mario has always said he will do whatever it takes to keep a solid base under EU financials. Repeating this message should not come as a surprise yet this market seems to react to old news like it was new news. Someone needs to recalibrate those algo bots!

The summer is almost upon us. You wouldn’t know it looking at the UK weather which resembles something like the African wet season. Some summer blockbuster drills are not far away from spudding now. PetroMatad, I3 Energy, Amerisur, SOLG and many more all have significant drill plans over the next 3 to 4 months. An exciting period for investors awaits. That said, very few exploration wells/drills are successful as proven by Amerisur of late. The last 2 wells drilled on CPO-5 licence block have been disappointing. However, AMER did have success on Plat-26 on their Platanillo licence, delivering an extra 700bopd and boosting full production towards the 7000bopd level. The next well on CPO-5 is expected to be an appraisal around the Indico-1 discovery. Chances of success should be much higher here but there is still no guarantee that they will be successful so risks still remain.

SOLG has been hit hard by local opposition to mining and a hearing to decide on a referendum is expected to be held tomorrow (June 20th). Ecuador needs mining and is prolific as a region when it comes to resources. But the locals and communities want a fair say on how their villages get moved or cleared out and rightfully so. Some do not want any mining at all and fear pollution. On the other side of the argument, the large mining companies bring jobs, roads, infrastructure, schools… the list goes on. One would expect common sense to prevail and a referendum to be avoided.

Finally, stocks like Petra Diamonds and Premier Oil look heavily oversold against a recovering market backdrop. These kind of valuation gaps tend to get filled swiftly once risk reduces. Rate cuts tend to stimulate global growth which in turn can bolster interest for Diamonds. And with OPEC due to meet on July 1st (although they can’t seem to agree on a firm date yet) Oil should be heading back to the $70’s (brent). Concerns over MiddleEast stability are also a major factor for Oil prices and after recent tanker attacks things are certainly not cooling down. Quite the opposite. Yet looking at oil prices, you really wouldn’t guess that there is any risk there at all. A complacent market is a very dangerous market. If things worsen, Oil prices could be trading at $100pb again. That’s clearly bullish for many oil companies out there.

Week 24: Independent picks continue to top the chart without any real challenge from the Guardian or ShareHUB picks. A few good summer drilling results for the ShareHUB folio and things can change fast.

Independent top picks for 2019 – week 24
Guardian top picks for 2019 – week 24
ShareHUB top picks for 2019 – week 24

ShareHub Hotlist 2019 Review – Week 23

Back in the black for TheShareHUB picks. A good week for all stock picks as the DOW bounced 1500pts on hopes of a US rate cut and an end in sight to a China Trade deal. Mexico tariffs were also a concern but appear to have been avoided for the time being. All in all, weak US Job numbers is certainly nothing to be celebrated. Growth is slowing and the longer Trade wars go on the more damage is done. Growth fears have commodity stocks under pressure with Oil being effected more than most due to the US production data issued each week. The market has been expecting ‘DRAWS’ as supplies tighten under OPEC’s cut in supplies. But lately, the DRAWS have been replaced by huge unexpected BUILDS. And the frightening thing is, this is with Iranian Sanctions in place, historically low Venezuela supplies and Libya production at near zero. If it wasn’t for these three issues, the market would be awash with Oil and prices would be $40pb again (Brent). In short, something has gone wrong. Either US data numbers are incorrect or OPEC agreed cuts are not being executed as agreed. The last two months data is more notable suggesting that someone somewhere (could be Saudi’s or Russian’s) are pumping more than they should be. OPEC are due to meet up on July 4th to agree on a possible extension to production supplies for at least 6 months. If data continues to be poor, they might need to consider cutting supplies further or at the very least ensuring all involved stick to agreed quotas and are not allowed to pump more than they should. As for US data, trust it as far as you can throw it. US rig counts have been dropping month on month for the last quarter yet production continues to rise. That’s not symptomatic of US shale. Historically wells perform initially at peak rates and then tail off fast meaning that new wells are required to replace them and that involves rigs. So again, something doesn’t quite add up here. It’s a bit of a mystery. But that’s the Oil trading market for you. More barrels are traded that actually exist and speculative hedging/shorting is rife. The fact that it’s possible to either have $40pb next month or $100pb says it all. The Saudi’s can’t cater for the speculators. All they can do is try and rebalance the market and they failed to it last year and thus far, they have failed to do it this year too. Their credibility is certainly being tested.

Overall, the uncertainty over trade deals, global growth, OPEC… all mean commodity stocks are out of favour. There are some cheap stocks out there – that’s for sure. But a lot of unknowns need sorting out before the sector can see some bullish action. Small caps on the other hand trade in a cosmos of their own. Anything can happen on AIM. Stocks like MATD, I3E, PVR and many more drilling huge targets over the next few months are in favour as these are not effected by Oil prices near term and due to small market caps, they can multibag upon any significant discoveries. The Risk vs Reward ratios vary. From drilling wildcat wells to drilling almost ‘appraisal’ style wells. The latter generally have CoS of 60% to 70% or more. So you have to pick your AIM exploration stocks carefully. Some have a much better chance of success and in theory this should be reflected in their market caps… but often it isn’t, which presents opportunities for savvy investors.

Week 23 – Review:

A good recovery week for TheShareHUB picks as they climb back into the black. The two newspaper top picks tread water. H2 is approaching fast and the year is zipping by. It’s either going to be much of the same in H2 or with a US/China trade deal agreed, it could be new highs for all stocks and a terrific end to the year. With US elections around the corner, Trump will be keen to see markets do well.

Independent top picks 2019 – week 23
Guardian top picks 2019 – week 23
TheShareHUB top picks 2019 – week 23

Heads up – I3 Energy

The following note was issued exclusively to ShareHUB subscribers on June 4th 2019. Now available to all ShareHUB readers.

I3E 2 year Chart

I3 Energy PLC is a newcomer to AIM having listed just under 2 years ago. Its taken them that long to get a summer drill funded and organised on their Liberator Field. On June 3rd 2019, the company closed the deal on a transformational Junior Loan Facility of £22mln. These funds together with the previously successful £16mln share placing (12th March 2019 at 37p a share), means the Company is now ready and loaded for an exciting Summer 2019 drilling programme.

Drilling operations on the Liberator Field are expected to commence as early as mid-July 2019, using the Borgland Dolphin semi-submersible drilling rig. The Company has also made good progress in its negotiations with RSRUK to finalise offtake terms for the Bleo Holm FPSO and continues to progress documentation with the OGA for the Liberator field development plan.

The Company has also executed a crude oil offtake and marketing agreement with BP Oil International Limited to market its crude production from the Liberator field. First oil from the Liberator field remains 2020 with flows expected at approximately 20,000 bopd, from two development wells.

I3 Energy Said:

“We are very pleased to announce the closing of this £24mm funding package. The Company is now funded for its upcoming 94-day, 3-well drilling campaign this summer on its 100% owned Liberator field and Serenity prospect, which is targeting a combined STOIIP of over 500 MMbbls. The Company is now fully focused on delivering a successful 2019 drilling programme and execution of the Liberator development to deliver first oil in 2020.”

Lombard Odier Asset Management (Europe) Limited have been a key shareholder and recently took on an extra £2m equity placing at 37p which looks to have sealed the deal in terms of the Funding package.

With a market cap just shy of £39m, i3E clearly has plenty of upside should they deliver success with the drill bit. The junior facility is expected to give way to a more significant £50m to £100m loan facility upon a successful summer campaign which will be required to see the company through FDP and 20,000 barrels of oil. The company has just under 95million shares in issue so it would be fair to say that shares in issue will rise as the project progresses. But should they succeed, it might be worth noting Hurricane Energy as an example of a explorer that has now turned producer with their EPS set to produce 17,000 to 20,000bopd albeit with sizable resources under their belt but as yet, limited proven commercial delivery… to date. Hurricane Energy’s market cap is £1.1bln.

A long way to go for I3E, but with the funding package sorted and the drill bit set to start spinning in just over 4 weeks time, the stock should be in high demand in a very tight market with just under 100m shares in issue (many of which are in Lombard’s hands).

Not without sizable risk, so please conduct your own full diligence/research and read all risk warnings (see side bar of website).

ShareHUB target for 2019, 120p. Assumes a successful 2019 drill campaign.

Price at time of note: 44p
Current price: 48.25p.

Director buys – Petra Diamonds CEO Richard Duffy 240k @ 21.35p

Richard Duffy – Petra Diamonds CEO

Late on Friday (last week) Petra Diamonds said Chief Executive Officer Richard Duffy purchased approx GBP51,200 in shares in a transaction at 21.35p a share. Earlier in the week, Goldman Sachs issued a broker note on PDL upgrading their recommendation to ‘BUY’ and increasing the target to 32p a share.

It’s not unusual to see directors buying in the open market, but in Petra’s case Mr Duffy’s purchase perhaps carries a little more weight as it’s his first purchase and one that has been made ‘after’ he has had 4 months to review the business since joining in mid Feb 2019.

Mr Duffy is no spring chicken. He was previously chief financial officer and head of African operations at AngloGold Ashanti. He’s very well respected in the City. So the message from Mr Duffy is a strong one indeed.

Upon his appointment, Petra’s chairman, Adonis Pouroulis, said, “Mr Duffy will be critical to drive Petra’s transition from a phase of intensive capital expenditure and expansion to a focus on steady-state, cash-generative operation.”

Mr Duffy’s challenge is to get Petra’s $550m (approx) NET debt pile down. The first half of 2019 has seen a continuation of capital injections into the business which has been ongoing for sometime now. However, this intensive capex period is set to change with the bulk of investment completed. The second half of 2019 should see Petra generating significant cash flows which should enable sizable chunks of debt to be paid down. The market is understandably taking a cautious view to-date with PDL’s share price near all time lows. But Mr Duffy’s recent purchase might be seen by some as a message to all the doubters out there that the company is indeed on the recovery path to solid growth. If anyone knows the business… it would be him.

Petra Diamonds is part of TheShareHUB top ten picks for 2019. Please read all risk warnings (see the sidebar). PDL current price 22.7p.

ShareHub Hotlist 2019 Review – Week 22

A better week for TheShareHUB picks with PetroMatad notching up ‘2 x Multibagger status. The stock looks odds on to deliver a 3 bagger and possibly a 5 bagger should they deliver with the drill bit this summer. Plenty can go wrong so always huge risk with explorers. But the chance of success looks higher than previous wells so it’s fair to expect the market to build a little more into the pre TD pricing compared to last year.

It’s been a tough 6 months+ in the markets across commodity focussed stocks. Miners have been shunned. Oil stocks ignored despite a stronger and more stable Oil price. Large debt weighted companies like Tullow, Premier Oil and Enquest are all making inroads into paying down debt whilst also maintaining capex. The latter is important as if you don’t invest in the future, you’ll end up with depleted reserves and falling production curves. The key for debt heavy plays is to strike a steady balance between, debt reduction and capex. Premier Oil and Tullow appear to be doing this faster than Enquest and have more depth in the folio’s when it comes to resources and exploration. M&A has gone a bit quiet since the last large deal involving Occidental and Anadarko. The acquisition ‘ink’ might remain dry until clearer signs can be seen on China/US talks. Talk of the Fed Reserve cutting rates should support equities near term but to make significant progress, trade talks really need to be settled.

With June upon us, the official ‘summer drill’ season is here. There are plenty of stocks out there drilling big targets in 2019. It’s a small window for north sea focussed companies as drilling in the winter is dangerous and can be expensive. Hence, any delays to drill plans can often push campaigns back by 12 months. So one lesson for keen investors to learn is never ‘assume’ the drill bit will be turning until the company finally confirms the official spudding event. In many instances, promised spud dates tend to be too optimistic and are often a few weeks delayed or in the case of PVR (announced this morning) delayed by up to 2 to 3 months+.

Elsewhere across the ShareHUB picks, SOLG were under heavy fire from shorters and nervous investors when news materialised last week suggesting that their licence blocks could be under threat. The share price fell from 36p to test 24p in just 2 days. Losing around £160m off your market cap based on nonsense news sums up the markets today. Too many Bots and Algo’s chasing price changes and paying zero attention to the validity of news. It’s more and more like a casino/bookies out there today. Currently the SOLG price is back to where it was at 34p/35p level but still some 10p off previous 2019 highs.

Week 22 Review:

The ShareHUB need a few summer drills to come up trumps if they are to catch the Independent top picks. With AMER, MATD and SOLG all with or about to kick off big drilling campaigns, the chances are one or two will deliver the goods… one hopes!

Finally, the second Heads up of the year was issued exclusively to email subscribers yesterday. The full note on ‘I3 Energy’ (i3E) will be issued next week to all readers. Target Price 120p.

And last of all… hot off the press this am, Goldman Sachs have issued an Upgrade to Petra Diamonds moving the stock to a BUY recommendation and price target of 32p. The stock was last trading at 21p. PDL is part of TheShareHUB 2019 top picks.

As with all stocks/information mentioned above. Please read the risk warnings in the sidebar.

Independent top picks 2019 – week 22
Guardian top picks 2019 – week 22
ShareHUB top picks 2019 – week 22

ShareHub Hotlist 2019 Review – Week 21

A short update this week. Much of the same across markets with China/US still bashing each other with handbags. The idea of Boris Johnson taking over the country from Theresa May can only be entertained within what has become a madhouse of a conservative party. The country needs stability. It needs some ‘grown ups’ and thank goodness Mr Bercow is staying on for another period time. Without him, it would be like something from Lord of the flies. Any Conservative politician that has been directly involved with Brexit needs to remove themselves from the list of PM candidates pronto. A fresh face, one that has not shown a single level of self preservation over importance of Brexit deserves the premier post.

Week 21 – Review

The newspaper picks continue to stutter as the market continues to show signs of risk off sentiment and overall cooling of interest while US and China bat it out. TheShareHUB picks suffered a blow after a terrible update from Wishbone. The company began 2019 with plenty of optimism but now appears exhausted and ready to fold. A poor show and investors deserve more answers from management. More problems at Hummingbird’s Yanfolila means a more protracted and dragged out recovery phase ahead. Ops appear to have stabilised but costs have spiralled and with wet season approaching, the company cannot afford any further reduction in cash flows/production. Better news from PetroMatad on drill plans and permits ahead of a July spud. This may slip to late July or early August but when the spud finally arrives, the stock should be flavour of the month. Elsewhere, Petra Diamonds has had a choppy time of late as large institutional holders go through transition periods and that’s taken its toll on PDL’s share price. Based on valuations and broker targets, the stock looks every part a 45p share trading at 22.5p. The traditional summer ‘half price’ sale is already underway there. Not without risk of course, but the worst does seem to be over for PDL. Cash flows are expected to be stronger in the final quarter which ends June 30th. Broker consensus targets range is between 30p to 50p. Although, there is one broker sitting at 25p. Finally, CERP continues to drift lower as investors await some solid signs of a much promised SWP exploration well in 2019. TheShareHUB picks need some good news and hopefully that will come from Amerisur Resources which have two drills underway. Platanillo-26 is a minor exploration play and not of much significance or importance, however SOL-1 on the CPO-5 block is important and the market keenly awaits the results from this well which should be forthcoming in June.

Independent top picks 2019 week-21
Guardian top picks 2019 week-21
ShareHUB top picks 2019 week-21