ShareHub Hotlist 2017 – Final Results

Congratulations to the Daily Mail with their top 9 picks for 2017 returning a very respectable 20% gain to win the 2017 Hotlist cup.

The Telegraph picks fell just 0.4% short of the finishing line but with 19.6% gain, heads should be held high. Between the two, it’s worth noting that some stocks (more than others) will have delivered decent dividends which will not be factored into the above gains. But in the true spirit of the challenge, the race to the line is based on out-right performance with divi’s excluded.

TheShareHub picks made a late dash but were never in the running for the Hotlist Cup after some puzzling performances by mid and small cap E&P’s. Head scratching stuff against a very solid PoO recovery. With Tullow, Premier Oil, Enquest and Faroe in the picks, you would have expected a firm response from share prices after seeing PoO move from Low $40’s to high $60’s per barrel (Brent). When PoO moves up 40% it’s a recovery. It’s also very profitable to companies who have already reduced opex to low $20’s. Against this bullish backdrop, Tullow is actually 21% down on the year. Enquest 32% down, Faroe virtually unmoved and Premier Oil comes in with a 3% gain. Tullow, Premier and Enquest were all marked down in 2015 and 2016 based on the Oil Price collapse. It’s mind boggling to see these stocks trading at levels last seen when PoO was testing $30pb. Just what on earth is the market thinking? Well, it could be a case of ‘not thinking at all’ when it comes to higher debt weighted E&P’s. ‘Ignored’ is probably the most appropriate term. The market has been on a feeding frenzy when it comes to blue chips and the FTSE100 or DOW or S&P. The bigger companies have been gaining the attention. As an example, SHELL finished the year with a share price that is at a 3 year high. Yep – last time Shell traded at that level PoO was testing $100pb, US shale was flying high and the Saudi’s had not flooded the market. So what’s special about SHELL? Well, it has more to do with institutional money flows than valuations. Investment banks and hedge funds are simply awash with cash which has been injected into their paws via cheap QE. When money is handed to you at such a cheap price, you don’t have to take many risks to put in a decent return especially if everyone else is on the same wave length. Add to this the ‘handcuffs’ that have apparently been applied to ‘some’ trading houses post Lehman’s 2008 collapse and it’s not hard to see why the money flows found their way into safer, less risky Oil plays rather than higher debted companies like Tullow, Premier and Enquest. That all said, the Oil Sector in 2017 has shown great signs of progress over the last 2 years. Capital and Operational costs have been reduced dramatically and companies are looking leaner and meaner. The perfect mix going into 2018? Well… that depends on the broader market sentiment of course. ShareHub Readers will remember the RBS warning which in early Jan 2016 said ‘Sell everything’.

From Jan 2016 the exact quote was: “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” RBS said in a note to clients.

FTSE100 in Jan 2016 was 5700. FTSE100 in Jan 2017 was 7340 and more recently hit highs of 7688. A terrible call and one RBS really ought to apologise for. The problem these days, is that the media is fighting for headlines every second of the day. Sensational headlines create panic and fear amongst retail investors and you’ll often find they are delivered to the press at uncertain times. As an example, 6 months ago (June) the Oil Price topped off at $50pb and drifted down to $42pb. Suddenly the newspapers were awash with headlines of bear market…$20pb coming… experienced oil guru’s saying it could hit $10pb. Panic, Panic, Panic, drama, drama, drama, and all this time the Hedge funds and Investment Banks are buying the black stuff and closing out shorts. A week later and PoO recovers to $45pb. The media and press channels go quiet. A few more weeks pass and PoO edges up to $50 (back where it was just a few weeks ago) and yet the media is silent… almost too embarrassed to comment after the sensational reporting of weeks past. Then with PoO edging $55pb, the media and press wheel starts to turn positive. Suddenly OPEC is working. Oil gluts are gone and $65pb year end predictions appear and the $20pb predictions slip back into the shadows. It’s ugly stuff to watch. But that is where we are these days. The Markets have become unpredictable almost casino like. Share prices are driven by herd behaviour and money volumes rather than news flow or valuation metrics. It’s normally a trait of AIM traded stocks. A junior market where anything is possible. You’ll find some companies selling chocolate fireguards with markets caps of £50m and retail investors still pricing in (or expecting) p/e values x 10. But every now again, you’ll find the opposite. A company which has terrific cash growth potential, limited debt and solid earnings forecasts priced at bargain bucket levels. Seemingly ignored or just not the flavour of the month… until the herd arrives of course! Multibaggers aplenty – AIM has the ability to make millionaires out of many Retail Investors and conversely make many bankrupt. That’s the attraction and appeal. There is no recipe for success. It’s a minefield out there. But if you spend sometime researching, understanding the business and the threats and risks, then without a doubt, you’ll increase your chances of survival and maximise your chances of making a profit.

Week 52/Final Results Below, along with a short summary for TheShareHub top ten.

Summary of ShareHub Hotlist 2017: (in no particular order)

  1. Enquest – Scuppered by delays on flagship Kraken asset. Broader folio of producing assets showing declines. Debt pile likely to take longer to reduce. Net result… unwanted and ignored by investors. Not likely to change until the market sees evidence of growth and debt repayment/reductions. Market deploying wait and see policy.
  2. Faroe – In transition phase from explorer to major mid tier producer. After years of avoiding debt, the company recently took on an unsecured bond to finance new developments. Market deploying wait and see policy.
  3. Futura Medical – Disappointing year with failed marketing contracts and weak demand for leading products. Needs to get a shift on before wider market take advantage of IP.
  4. Hummingbird – Delivered everything that they said they would. On time, and on budget. First multibagger of the year for ShareHub top ten picks. Plenty more to come in 2018 as the gold flows and the cash rolls in.
  5. Hurricane – I would like to say they ‘delivered everything that they said they would’ but that’s not quite the case at all. Preferred farm out deal did not come through which forced management to go it alone with first phase eps. Hefty dilution and debt put a cap on any major share price progress. Disappointing but future looks bright if they can deliver first oil on time and on budget. As proven by Enquest/Kraken – this is no easy feat and big risks remain.
  6. Ophir – One of those head scratching moments. Trading at all time lows against a 40% PoO recovery. Makes no sense. Delays on Fortuna project disappointing. Market deploying wait and see policy with regards to funding issues, wary of potential cash raise / dilution ahead.
  7. Premier Oil – Delivered first oil from Catcher on time which is a major achievement but market deploying wait and see policy due to historic failures on other developments such as Solan. Mexico exploration success potentially massive but concerns over recovery potential, government tax share and licence boundaries holding further exploration back. Debt pile a concern and needs to reduce before proper rerating. Broader folio performing well and E.ON acquisition a real steal. CB’s a drag on share price.
  8. Quadrise – Dropped heavily on Maersk withdrawal but rebounded well with Saudi/Japanese opportunities. That said, late RNS on Friday shows that progress will be slower than investors had hoped.
  9. Tullow Oil – Another head scratcher. PoO up 40% and Tullow down 21%. Rights issue has clearly had an effect and debt arbitrage (shorts) playing their part to cap share price gains. Importantly – production solid and debt reduction underway.
  10. Ithaca Energy – started the year without Stella Production and was bought out by Delek Oil before investors could see the fruits of that 5 year project. 99p in Jan and sold for 120p. 20% gain inc initial funds reinvested into Providence Resources in May.
  11. Providence Resources – Sub’ed in for Ithaca and unfortunately failed to deliver on the hype of huge exploration drill in Celtic Sea. Recovered towards year end on news of additional farm outs and Barryroe exclusivity agreement. No matter what one says, PVR management team keep on delivering shareholders HUGE exploration opportunities with minimal cash outlay through farm outs. 2018 looks like another exciting year but it could be slow going again.

That concludes 2017. Disappointing after the huge 130% ShareHub top ten performance in 2016 and it was always a tall order to match that. That said, with PoO some 40% higher, I firmly expected to see the 2017 ShareHub picks in the blue and not in the red. The 9.75% fall could have been worse and the late recovery (roughly 15% up in last 3 weeks) perhaps hints that the delayed recovery in some oil stock picks is now underway. Bodes well for 2018? We shall have to wait and see.

The 2018 ShareHub top ten picks will be announced later today.