Imagination Technologies – One to watch

Prior to yesterday’s ‘up for sale’ announcement, Imagination Technologies was seeing a great deal of shorters interest via various hedge fund / basement style offices.

As seen below, (2 to 3 days old) positions were being added in the 100p to 110p range.

I doubt very much these ‘shorters’ were banking on IMG putting up the forsale sign and should apple or a large player step forward and swoop the entire business, my guess is that these shorters will be fried.

IMG is not a stock that has a huge amount of float. Apple own a large stake as do many II’s. Getting hold of stock is not easy when dealing in large orders.

Hence, it will be interesting to see the below shorts wind down or wind up as they seek to manage their exposure.

Arm Holdings went for £24bln and was seen very much the daddy of the chip world. Whilst IMG is some distance from ARM’s chip domination, the company does have IP which many Apple competitors would love to get their hands on.

Apple may just decide that taking IMG out and off the market is the best way to secure their product advantages/IP. May the game commence…

Based on previous valuations of the IMG business, an approach close to 250p to 300p might be acceptable. That’s double the current sp and potentially double or triple trouble ahead for the casino style shorters.

Not without risk of course, but with a short squeeze likely, I suspect this one will continue to soar higher. The question everyone should be asking is just how much does Apple really care about their IMG’s IP which their business has used for years?

Is a bidding war  inevitable or does Apple say enough is enough and nips this in a bud with an offer that cannot be trumped?

Current IMG share price 146.5p

0.5% short positions or above… (3 days old)

Algert Global LLC 0.71% ↑ 0.08% 2017-04-28
Caxton International Limited 0.53% ↓ -0.17% 2017-05-05
GSA Capital Partners LLP 1.58% ↓ -0.03% 2017-06-20
Garelick Capital Partners, LP 1.62% 2017-04-11
Marshall Wace LLP 0.74% ↑ 0.12% 2017-06-16
Numeric Investors LLC 0.74% ↑ 0.24% 2017-06-20

One to watch – Providence Resources

 

Providence Resources (PVR) has been in the thick of it for the last few years as the bearish commodity cycle hit the sector the hard. M&A dried up and gaining any kind of funding or farm out deal was nigh impossible. Luckily for shareholders, PVR survived 2016 with the help and support of institutional investors who stumped up close to $70m in a very dilutive equity raise. Surprisingly, the company still has a moderate amount of shares in issue at 598m having done a reorganisation of capital some years back. This is quite small for an out and out explorer and still leaves some mileage for future equity raises should that be needed. The company has a number of key licences in and around the Celtic Basin. But by far and without a doubt, the jewel in the crown is a licence called ‘Barryroe’.

Barryroe is located in the North Celtic Sea Basin, offshore southern Ireland and is adjacent to the PETRONAS operated Kinsale Head gas field. The Company acts as Operator with 80% interest and Lansdowne (LOGP) 20%. In March 2012, Barryroe flowed at rates of 3,500 BOPD from a 7-metre vertical section of reservoir. Post-well analysis, in conjunction with the new 3D seismic data set, led to a substantial upgrade in the field size to over 1 billion barrels in place (2C). Subsequent work on multiple development concepts, together with detailed engineering studies on recovery factors, led to estimated 2C recoverable resources of over 300 million barrels of oil from the two main tested reservoir intervals. PVR’s market cap in 2012 was just shy of £700m.

Today, their market cap is just £100m.

This is very much down to poor market sentiment which tends to lead to a rather pessimistic view of 2C resources and especially in the case of a smaller player with limited access to funding. Barryroe requires more testing before a development plan can be agreed and the company has been seeking a farm out deal with a view to drill one or two more wells on the licence. It’s a similar position to that seen on Hurricane Energy in 2016. Hurricane also had a sizable discovery in their Lancaster Licence but due to the poor market backdrop had failed in gaining a decent farm out deal. With around 650m shares in issue, the company decided to do a dilutive equity raise of approx 350m shares at 10p which brought in valuable funds to drill a new well on the asset. The market cap was around £65m at the time of the fund raiser. 4 months later, and after some significant success with the drill bit, the market cap jumped to £400m. A further equity raise of 200m shares was done, more drill success followed and now with 1.2bln shares in issue, the market cap is £650m. But here’s the payback… the company still holds a 100% of all their assets.

Improved market conditions have also helped deliver share price growth. The second half of 2016 was a transformation to the earlier doldrums seen in Feb 2016. Since the end of 2016, the sector has improved further with M&A action accelerating and deals getting done.

Like Hurricane, Providence Resources did a dilutive equity deal in 2016 (as mentioned above). But the funds raised were not intended to be used directly on Barryroe, but instead are being used (in part) to finance a drill on a huge prospect called Druid/Drombeg in the southern porcupine basin. (See RNS below).

Providence have yet to confirm the finer details and timings around the SPB drill but all appears on track for June 2017. More announcements over the next few weeks should confirm all the pieces are in place.

With a market cap just over £100m, the Druid drill looks in for free. Should they be successful, it’s more than possible that they could follow in the footsteps of Hurricane Energy. The companies current cash position and upcoming drill catalyst also improves the chances of a good farm out deal on Barryroe – that and an improving market backdrop.

Of course, if all goes well, they may not need to farm out at all, but there’s something to be said for being sensible. And the reality is Barryroe is so large that it deserves a major cashed-up player behind it. But all in good time.

In summary, Providence Resources is back on the centre stage and as June approaches, it would not surprise to see the market beginning to price in a bit of the better sector sentiment that has to date deserted PVR. News on a Barryroe farm out deal could come at any time. Any prospective partner will be acutely aware that PVR have a potentially transformational drill in around 16 weeks time.

Current share price 18p. Broker targets vary between 30p and 40p.

Based on the opportunity ahead (drill catalyst) and current market conditions improving for farm out deals (M&A) thesharehub Pre-TD target for PVR is 36p. Any major success and that number could easily double again. Also worthy of a note is Lansdowne Oil&Gas (LOGP). They currently hold 20% share in Barryroe licence and with a market cap of just £6.5m, any Barryroe deal could see their shareprice rerate significantly higher. It’s possible that any farm out deal or partner involved could just take Lansdowne out with a bid as the company has little else on its books now after recent licence relinquishments.

Usual caveats apply. Please read the risk warnings in the right-hand side column.

……………………………………………………………………………

23 Jan 2017 07:00:20
PROVIDENCE RES.
Licence Update
Frontier Exploration Licence 2/14
Southern Porcupine Basin

FEL 2/14 PROGRESSED TO THE SECOND PHASE OF THE LICENCE
PRIMARY WORK PROGRAMME ACTIVITY IS THE DRILLING OF THE DRUID PROSPECT

PLANNED SPUD DATE FOR THE DRUID WELL IS JUNE 2017
Dublin and London – January 23, 2017 – Providence Resources P.l.c. (PVR LN, PRP ID), the Irish based Oil and Gas Exploration Company, provides an update on the Frontier Exploration Licence (“FEL”) 2/14, which lies in c. 2,250 metre water depth in the southern Porcupine Basin and is located c. 220 kilometres off the south west coast of Ireland.  The licence is operated by Providence Resources P.l.c. (“Providence”, 80%) on behalf of its partner Sosina Exploration Limited (“Sosina”, 20%), who are collectively referred to the “JV Partners”.  FEL 2/14 contains the Paleocene “Druid” and the Lower Cretaceous “Drombeg” exploration prospects.

LICENCE UPDATE
The Minister of State for the Department of Communications, Climate Action and Environment has given his consent to the progression to the second phase of the licence, subject to the completion of the agreed work programme which includes the drilling of the 53/6-A exploration well on the Paleocene Druid prospect and the subsequent integration of the well data into a comprehensive assessment of the petroleum potential of the licence.

OPERATIONAL UPDATE
In November 2016, the Company signed a drilling contract for the provision of the Stena IceMAX drill-ship to drill an exploration well in FEL 2/14 during 2017. The drilling contract provides for one firm well, plus an additional option, which is electable at the discretion of the JV Partners for the drilling of a second follow-on well.  Other key service contracts are now being finalized for the drilling operations for the planned 53/6-A exploration well. Based on the latest project timeline and, subject to standard regulatory approvals and consents, the 53/6-A exploration well is currently planned to spud in June 2017.

Speaking today, Tony O’Reilly, Chief Executive of Providence said:

“We are pleased to have received this confirmation from the government on the licence progression as we continue to move forward with all the necessary works to enable the drilling of this high impact exploration well during summer 2017.”

Heads up – Metal Exploration (MTL)

 

First ‘Heads up’ of 2017 goes to MTL.

This is a curious miner. Early in 2016 it was unwanted due to running into delays on its Runruno project which then compounded debt obligations and things were looking a wee bit messy. However, late in Nov 2016 the company achieved two key objectives both of which were crucial to its ongoing future. First – it produced its maiden gold sale. And second, it renegotiated its debt terms and repayment schedule.

It’s too early to comment on the sustainability and performance of the gold mine operations and these will be crucial to paying down the debt. However, assuming all goes well and they meet debt repayments as planned, then it could be time for a re-rate.

In 2016, the company achieved a moderate sized equity placing at 5p a share which was largely spread across the II’s who dominate ownership of the stock to the tune of near 75% of  all shares in issue. This doesn’t leave much of a free float but over the last few weeks, Ruffer and Baker Steel capital, two of the large II’s have kindly been dropping wedges of stock into the market. Volume over the last 2 weeks has been ‘large’ and buyers are not in short supply. It’s important to have sufficient balance between II ownership and liquidity especially when looking to bolster the stocks interest and attract new market markers.

Price action of this sort can often be pinned to a rotation of stock from one ii to another or it could suggest news is on the way. In fact, it was only last week that INSIDER Mr. Jeremy Ayre, a Non Executive Director, bought up 5 million shares with his own money at 5p a share.

MTL is certainly one to watch and if you like the high risk plays of smaller miners and think Gold is due a rise, then his one has plenty of merits as one of the lowest cost producers out there. As always, research all stocks in depth before you contemplate any investment. Risks apply. See risk warnings in sidebar.

ShareHub 2017 Hotlist picks

2016 is looking like being the best year to date since the hotlist was started. With multibagger galore and a current return of 119%, it’s clearly going to be very hard to beat in 2017.

But there’s still plenty of wind in them sails me hearties and picking the winners in 2017 is going to take some smart thinking. Some stocks look very good value and others look a little toppy after multibagging 4 or 5 times over.

Tune in on Jan 2nd, and you can decide for yourself whether the ShareHub top ten for 2017 are for you.

If you feel there is a stock out there that you see as a multibagger in 2017, by all means post it up. I’m sure all readers have a few stocks they think are going to do well in 2017 and this is the sharehub… to be shared by all.

Heads up – Ophir looking very cheap

Currently 77.5p a share, Ophir is undoubtedly one of the few stocks left out there that has not yet made a meaningful move higher in 2016. Part of thesharehub top ten, Ophir has languished below 80p for the majority of the year. Meanwhile, progress has been made by peers as the PoO recovery continues from lows seen in early 2016.

Ophir’s business has not remained static. In fact, the last update on production in September was 11000bopd and expected to increase as more workovers complete. Add to this, the company announced the start up of the long awaited Kerendan field. Whilst not oil related, the gas prices of late have increased slightly and are expected to rise further in the coming months.

And finally, after the disappointment in early 2016 on Fortuna farm out deal falling through, the company announced in early November a new agreed deal which will see just $150mil capex spend by Ophir (not until 2018/19) on what is expected to be a $2billion capex project.

And finally finally… (yes there is more) SHELL announced the spud of a new well in Tanzania exploring further gas resources to add to the already sizable reserve tally to date. Ophir owns 20% of the licences after selling 20% a few years back to Pavillion for $1.2bln.

Ophir market cap currently…  £545mil with a healthy cash balance of near £150mil net of debt.

Undervalued by a country mile. The market will catch up eventually but for now, this one looks forgotten.

Sharehub price target set at 110p for 2016.