ShareHub Hotlist 2019 Review – Week 05

A tough week for TheShareHub top ten picks for 2019. Commodity prices are up over 20% in most cases from Oil to Gold. So question is… why are commodity focussed equities slow to react? In the Oil&Gas sector, the market is still unsure of how OPEC and NON OPEC are going to get along. Trump’s sanctions on Venezuela came as a bit of a surprise and undoubtedly have led to stronger oil prices over the last week or two. Russian oil cuts have yet to be felt after the Russian Oil minister admitted that it takes time to reduce production safely. Funnily enough, it doesn’t actually take them much time to boost production when allowed. Cynicism aside, the Russian’s are not part of OPEC and as such do not need to comply with cuts. A ‘deal’ between the Saudi’s and Russian’s is very much ‘open’ to intepretation and it’s because of these vagaries that the market is so against pricing ‘in’ a full supply/demand rebalance. Furthermore, Iraq and Iran are still very much the wild cards. Trump promised heavy Iranian oil cuts via sanctions some 6 months ago and ended up delivering very little on that promise. That said, the recent Venezuelan sanctions are helping and the data over the next few weeks should begin to turn quite bullish for PoO. That bodes well for the likes of Enquest, Premier Oil and Tullow. All big debt holders, and all needing top dollar a barrel to ensure meaningful debt repayments can be made whilst still continuing to grow and support production levels. That’s the biggest problem for Enquest and Premier Oil near term. Many producing fields are heading towards plateau rates and many are now very much on the decline. Expensive workovers, pipeline repairs and so on…all await around the corner. That’s E&P for you.

Week 05 Review: The FTSE100’s strong recovery has benefitted the two newspaper top picks which both lead the way. Barrick Gold has been dropped from the Independent picks and funds redistributed amongst the other 11 stocks. Based on the Rangold Resources tip, TheIndependent picks would be around 15% down on that stock bringing their total growth thus far to 5.5%. The Guardian top picks are not far behind. TheShareHUB picks are carrying the wooden spoon for the moment which is quite a slide from the opening 11.5% gain in Week 2. It’s likely to be a bit of a roller coaster in 2019 so get used to wild swings.

Drops in AMER, MATD and SXX look a bit over done but there’s nothing wrong with a bit of consolidation. Stocks often go on to test higher highs once support levels have been tested and short term trading interest has departed. For many smallcap stocks, the lack of institutional interest is frustrating especially as some assets are reasonably derisked compared to a decade ago. The wash out that followed OPEC’s ‘flood the market’ decision in late 2014 has left a long tainted mark on the sector. Ironically, many of the mid tier and lower tier E&P’s have become more streamlined. Debt reduced or renegotiated and overheads/costs reduced. Many are leaner and meaner than they were in 2010. Yet the II’s still resist the temptation to get involved meaningfully. Add to this the impact of new margin rates and equity trading restrictions on normal PI’s and you have a market that looks and feels more more like a ghost town. Volumes are down for the above reasons and brokers/spreadbetting firms are having to work twice as hard to gain the interest seen some years ago. M&A has been disappointing too. Ophir’s recent sale at 55p was a blow for the sector. Faroe’s sale valued a little higher yet still well below the expected fair value price. It’s a buyers market at present so expect a few more cheeky bids to come in over the next few months. If you don’t ask then you don’t get. Fighting off predatory offers requires a strong institutional investor base that are onboard with valuation benchmarks. Amerisur’s John Wardle is currently in London to bolster II interest in the stock after a number of transformational events have left the share price looking healthier but a long way from where it should be. If he can get some large II’s stakebuiding at 17p to 20p levels, then any cheeky takeover approach at 25p becomes less likely. II’s generally want double bubble for their risk vs reward when dealing with the smaller cap stocks. They like to have maximum upside and limited downside. At 17p today, AMER certainly offers that scenario assuming the drill bit performs of course. Fortunately, AMER has approx 6 to 7 wells due to be drilled this year with one underway right now with an expected TD date of end of Feb. So a duster is not the end of the world by any means.

All quiet over at CERP.L. If the company is to get plans for an SWP drilling phase underway in Q2/3 2019, then action will need to be seen regarding drill targets/permits/rigs and potental partners brought in. With bread and butter production of 850bopd to 1000bopd in place, CERP can afford to take their time and build up the cash balance. But leave it too late and they could miss the drilling season slot in Trinidad. News might not be too far away for CERP investors who have had to be painfully patient over the last 6 months+. But as the CEO’s says… 2019 is the year they have been waiting for. Well, Mr Koot… it’s time to deliver. Assuming he does, then the share price shoud recover very quickly.

The first ‘Heads up’ of the year (Echo Energy heads up price 8.65p) went out to ShareHUB subscribers last week, with a target price of 25p upon well works/stimulation success. No guarantees of course and risks remain. The full article will be posted on TheShareHUB website for all non-subscribers later this week.

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Roll on week 06…

TheIndependent top picks 2019 – week 05
TheGuardian top picks 2019 – week 05
TheShareHUB top picks 2019 – week 05