ShareHub Hotlist 2019 Review – Week 40

Just over 10 weeks till Christmas. Where did the year go? More importantly, just 3 weeks left before UK leaves the EU and Brexit at last means Brexit. For well over 3 years now, heels have been dragged, Politicians careers wrecked, Parliament disgraced and during all this the ‘people’ patiently wait. It’s tantamount to going into your bank and requesting a full withdrawal of funds and closure of account. Yes, sir/madam, we’ll action that. When.. erm give us 3 years please. As ‘Consumers’ we are protected and the above scenario cannot happen. You are free to withdraw your cash, close accounts, open new ones and whilst the Banks don’t like it… that’s just the way it is. But the mistake of holding a referendum was a simple one. There wasn’t a clear plan on how to action it. It’s a bit like signing off a new housebuild on marshland without a scooby do of how to build it or the risks and threats involved. Hindsight is a wonderful thing, but it’s clear as day that you didn’t need hindsight to see the diffculties involved in leaving the EU and these should have been made public prior to the referendum vote. Instead, we got bus-side adverts claiming millions to be freed up for public spending. One of many false statements supported (some would say pedalled) by the now Prime Minister of the United Kingdom. The man in charge is the same man that said Heathrow’s 3rd runway would not happen. 4 years later and the Conservative government gave it the green light. So what exactly awaits us in 3 weeks time? Another Boris style false pledge? Or a final deal and exit. Well, it might be a bit of both. It might be a bit of a part ‘exit’ with a Boris style pledge for a full exit in years to come. Of course, Boris won’t be around to see it done (bit like his fellow peer David Cameron) but that’s a story for another day.

What’s all this got to do with the markets then? Well, the combination of Brexit and US / China trade wars have all contributed to a weaker global growth outlook as US/China business stalls and Brexit handcuffs UK and EU business while we await the Oct 31st final deal outcome. In ‘limbo’ is the best way of describing it. So will there be a relief rally when it all concludes? Well, not exactly as at present there doesn’t seem to be a clear cut end to any of this. And that’s the problem for Mr Trump. With US Elections just over a year away, he’s keen to see the markets continue the bull run with US global growth and jobs growth. If both turn downwards, then he’s in big trouble. So the next 3 months are crucial for Trump. It’s now all about whether China wants to play ball. If they do, then a Santa rally looks most likely. If they don’t, then we could see a year ahead of turmoil for Trump with China being the biggest thorn in his side. The risks in 2020 look huge for the markets, But that said, the risks have been massive in 2019 and yet the DOW and S&P trade near all time highs. We seem to be in a period where the Black Algo boxes ignore the rhetoric, ignore the growth data, ignore the MENA region issues and ignore all other streams of common sense. That’s computers for you. Heaven help us all when they finally develop a sense of reality.

Week 40 Review:

TheShareHUB top picks is wearing the wooden spoon rather than holding it. It’s been a poor show this year. The markets in general have been hard on the commodity sector. A combination of social unrest in Ecuador and funding issues has reduced SOLG from 46p levels to 18p. A soft Diamond market has reduced Petra Diamonds from 50p+ to almost 5p not long ago. Both of these businesses are rock solid. And both are serious takeover targets at today’s levels. It might not be long before SOLG finds itself being under a cheap snatch and grab by a major mining player. Petra’s debt issues are manageable due to their ability to grow cash levels. But 8% debt interest is high against a low rate backdrop. This means that Private Equity or other funds which have access to cash can negotiate debt at much cheaper levels. To them Petra, is an opportunity to simply swap debt holders for equity holders in the longer term. In effect merge the two. They get the interest payments from the loans and they also get serious cash flow on top from the equity. The longer Petra are in single digits or even the low teens, the more likely a takeover becomes. It’s a £500m business trading at just shy of £50m with 250m carats tucked safely away underground. Amerisur Resources is a prime example of a company that is worth a great deal in a takeover situation but outside of that, priced at near 10p by the market. Today, it’s priced at 19p after putting up the For Sale sign after being approached by M&P (french listed business) with an indicative offer of 17p which was subsequently rebuffed. The final takeover price will be revealed shortly (if acceptable to the board) and is expected to come from ‘well funded’ interested parties. TheShareHUB believes that base value in a difficult market should be around 26p a share. However, due to the keen interest in Colombia of late (major companies have been swarming in for licence entry) the price should achieve fair value circa 36p or if going bang in the middle, 31p looks about right. Investors will know soon as the last company RNS hinted that the process will be concluded before Y/E. Elsewhere across the ShareHUB picks, CERP is firing up the engines ahead of a long awaited Drill on the SWP. Even a moderate success could see a significant increase in the share price. However, recent T&T budget news has failed to offer better commercial tax breaks/revenue terms for E&P’s operating in the country so investing more in boosting production is not being awarded. If T&T are not careful, they could see revenue from O&G fall as operators begin to leave the country. Finally, PetroMatad are days away from revealing results on their latest wells. Thus far they have drilled quite a few wells over the last two years and delivered nothing. It’s about time the company got some oil or gas flowing.

The newspaper picks have bounced back along with the FTSE100. Both are in the green again and if a Santa Rally kicks in, one of them should be walking away with the 2019 trophy. TheShareHUB picks are going to need some Takeover talk or monster resource discoveries to stand a chance of competing over the last weeks of the year.

TheIndependent top picks 2019 – week 40
Guardian top picks 2019 – week 40
TheShareHUB top picks 2019 – week 40

ShareHub Hotlist 2019 Review – Week 38

A tough week for TheShareHUB picks as SXX falls heavily on funding disaster. It beggars belief that the Government have allowed this to effectively fail. Yet again, the UK gov prefers to rely on foreign investment to bail blighty out. With Brexit around the corner isn’t it about time the UK started to learn to stand on its own two feet? According to Labour, Chris Grayling has squandered around £2.7bln on blunder after blunder. £85m apparently going to a Ferry/shipping company which didn’t even have the fleet to deliver. Contract terminated yet £85m still paid? Surely investing in the future in Potash/North Yorkshire makes sense pre Brexit? The UK farming industry will be under pressure to deliver goods which will likely be uncertain once Brexit kicks in. That said, we’ll all be on Star Trek style ‘meal in one’ tablets by the time the UK see the back of the EU.

Elsewhere across the ShareHUB top picks weakness dominates the bottom four. The best chance of recovery looks suited to SOLG which is trading in the wrong direction due to unknowns on Cornerstone acquisition as well as the next inevitable funding phase. Last year, the company secured funding in mid October bagging £45m at 45p from major shareholder BHP at a whopping 30% premium to the 20 day VWAP. Today, the share price is trading at 21.4p which is over half the value of the last placing. This seems at odds with the progress the company has made of late and the all important improving permit/legal/social community issues in Ecuador. Near term, it’s all about that Cornerstone acquisition and funding phase. Will BHP or Newcrest snap Cornerstone up or will they allow SOLG to purchase it through an all share offer and then take more stock via equity placing? There’s clearly a level of conflict within these interests and the market appears to be discounting SOLG heavily. If all goes well, then like last year the market might find itself having to mark the share price up by 30%.

Another stock struggling is Petra Diamonds. The Diamond market is going through a tough time of late and PDL’s debt is high but importantly, it is capable of repaying it which is why the debt holders have been very helpful with covenant issues in the past. The CEO has outlined a 3 year plan which on a basic business level should see $150m to $200m paid off the $525m NET debt pile. However, there is further upside through what Petra call ‘exceptional’ large diamond discoveries. These stones often sell for anywhere between $5m and $45m. Much depends on size, clarity and colour. Petra’s Cullinan mine is world class and has a history of discovering some real beauties. As per recent news, Petra pulled out a very rare blue diamond which could be worth inexcess of $20m. Hence, it’s these large stone finds that can reduce the debt pile much much quicker than the market is expecting. At 8p a share, the stock is priced for a D4E swap. That’s far too early to call hugely premature. That may well end up being the case in 18 months time, but equally, the stock could deliver $100m FCF in current year with just 1 further large stone find. My bet would be on Petra finding more than 3 or 4 large stones per year and if proves true, and the core business delivers as promised, then debt piles by 2022 could be in the sub $150m levels. With resources of around 250m carats, that clearly leaves plenty of upside for shareholders. A rerate should be on the way as the debt pile reduces Quarter upon quarter. Throw in a few exceptional stone finds and it could be multi-bagging in no time.

The best performing stock in the 2019 list is Petra Matad and that’s after they’ve hit dust again. With a number of drills underway, surely they can bank one? Fingers crossed… news due soon.

Finally, a pointer on Oil prices. At $62pb (Brent) the market is acting like the MENA region is a happy and stable place. Wake up for goodness sake. Iran (apparently) have just bombed the living daylights out of the Saudi’s main export plant removing initially 5m barrels per day. Add to this, the US rig count has been dropping like a stone. Either the US shale industry has found a way to drill without rigs or one would conclude drilling is slowly up in a big way. In my time, I have seen plenty of “market complacency” moments. But this one has my mouth wide open. Never before have I seen a market so dumb and ignorant to the risks that lay ahead. War in the middle east is closer than ever and that includes Israel. There is a real threat of the Iranian’s bombing more Oil export points as well as blockading the Strait of Hormuz. Factoring in the risk and usual premium of 30%, Oil prices should be of $80pb (Brent).

Investors want a market that prices ‘fairly’ not a market that prices based on some computer code. Bring back the humans or beam me up scotty. I’ve had enough!

TheIndependent top picks 2019 – week 38
TheGuardian top picks 2019 – week 38
TheShareHUB top picks 2019 – week 38

ShareHub Hotlist 2019 Review – Week 36

The William Hill St Leger Festival kicks off today and it officially marks the end of the summer malaise and a return back to the desks for many traders, city suits, ‘real workers’ and of course company directors, some of which make a summer holiday look like it lasts all year round! Some will be replenished by the release of stress. Some sporting tans that look more orange than they should and there are those that look positively grumpy at the idea the Autumn season is upon us. Whether seasonal blues or just emotional headaches from watching England perform houdini type acts during the Ashes, it’s time to refocus minds on investments/folio’s and what lies ahead for the rest of the year.

Markets have improved of late and it’s a puzzle as to why as China / US talks are none the closer. Brexit is still heading for an inevitable extension and UK politics is heading for a rude awakening should MP’s decide on another election. ‘Fed up’ or ‘cheesed off’ is the best way to describe the self protectionist Tory government, Labour and just about any other party around today. Charged with delivering the ‘peoples’ Brexit… and they end up delivering zero. Over 3 years (yes 3 years!) have been wasted. Now, your average degree student could be guilty of wasting year 1 out of 3 while they adjust to laundrette chores, learning to feed themselves and discovering hangover cures. But by year 2 they have knuckled down and year 3 they have graduated albeit with a debt mountain behind them. UK Politicians (and EU included) have thus far achieved nothing in 3 years. It’s just been one long bender. How many airmiles notched up? How many volovants swallowed? And at what cost to the public? Do we have a figure on it yet Mr Javid? Would you care to disclose it? It has been a disgrace and what’s worst, some are now talking about holding another referendum! Rinse and repeat? Oh please… noooo!

Moving on…

Week 36 Review:

TheShareHUB picks bounced back strongly over the summer weeks and now leads the pack. Commodity focused stocks do tend to suffer more during the summer weeks so this bounce back comes as a bit of a surprise especially against an apparent weak global growth backdrop. Across the top ten picks, Gold’s resurgence has certainly helped Hummingbird Resources fight back from the abyss. Should ops deliver as management hope, the company should be back to where they were 18 months ago. Weather permitting! Elsewhere, it’s good to see CERP finally showing some strength after a benign or stagnant first half. Investors are keen to see a well spud on the SWP and news of a South American acquisition is long overdue. Patience is a virtue (as they say). Which aptly applies to Amerisur Resources too… in offer talks with multiple interested parties and not a peep from them in months! The company is expected to deliver interims tomorrow, so investors might get something to chew on around then. That said, 6 months is the norm for acquisitions these days so AMER have until Dec 31st to get it all agreed which would tie in nicely with some management options that are due to expire. Nothing like a good old self imposed incentive to drive management forwards! SXX continues to recover but looks down and out for 2019 based on recent equity dilution. Wishbone much the same. Both have been very disappointing. SOLG continues to perplex investors as it builds on its huge resources. Concerns over funding usually emerge around now so that might be one reason for the poor share price performance of late. Finally, Petra Diamonds looks priced for liquidation. How on earth the market can adopt such an early negative view is beyond comprehension. The company has 3+ years to deliver on the self imposed 2022 project plan with debt reduction targets ranging from $150m to $210m. The Diamond market is struggling at present, but that’s been the case for the last 3 years. At somepoint, it should flatten out and even begin bouncing back. Petra Diamonds are cited to report on September 16th and investors should expect a confident statement from the CEO delivered by solid numbers if past RNS statements are to be followed. Hit the right tone and spot and the share price could be doubling fast from 8p lows and still look cheap!

Saddle up, plenty of jumps, hurdles and escape tricks required before this year is out as nothing is ‘uneventful’ these days with Mr Trump tweeting without parental guidance locks on.

TheShareHUB top picks 2019 – week 36
Guardian top picks 2019 – week 36
TheIndependent top picks 2019 – week 36

ShareHub Hotlist 2019 Review – Week 30

A good couple of weeks for TheShareHUB picks as Amerisur Resources and Hummingbird put in solid recoveries from lows. Unfortunately, there’s always one that spoils the party of late and that one happens to be Petra Diamonds. The old adage that ‘Diamonds are forever’ is beginning to wear thin. It seems society today places less value on the once highly desired stones and instead prefers to focus on more important things in life like Holidays, Mortgages and School fees! Never before has the Diamond market looked so over supplied and weak. Data from Anglo American (owners of De Beers) paints a very sad picture of an industry that used to pride itself on its long lasting lure and sparkle. The problem for the small stone market is how to justify and maintain a value for diamonds if the higher volumes flood the market? It’s a fine art. Rolex are a prime example of how to support your pricing against weak demand. They simply cut supply. Reduce manufacturing or buy back some models. They invest heavily in sports advertising. They manage to convey a desirable but practical consumer message. In retail terms, it’s hard to tell the difference between a £10k diamond and a £5k diamond. Size is not everything. Purety and colour often wins the value game. But here’s the problem… the generations today do not buy into the same quality codes that the generation went on before. Couples are opting for £10k deposits (or contributions…) on the housing ladder and a cheap crystal ring that looks and sparkles the same as the real gem it copies. The view is they will buy a ‘real’ diamond once they can afford one. Then comes the kids and that gets postponed. Then comes the school fees. And so on. Of course this is a small part of the market and as carat sizes increase so does the variation in type of customer. In summary, everything has got more expensive for young couples and those in mid life. Many can’t justify the cost of Diamonds against more important top purchases. This isn’t just about Diamonds. It’s also about the car industry. Premium Car Brands are struggling to lure young buyers in. Instead, many are opting for cheaper more practical and affordable alternatives. The days of the hot hatch are fading. So in this changing world how does the likes of Petra cope with tough market conditions? Well, the CEO Mr Duffy has chosen to reduce capex and set a FCF target of $50m to $70m per year. Based on their debt pile of $528m, it will take through to 2022 before the debt pile reduces to $300m. At this point, some debt may require renegotiation and that’s not unusual. But that’s a long way off and the market for Diamonds is uncertain. Which is why Petra has been trading at all time lows. Investors do not know which way to turn. Bullish or Bearish? At 12p a share, Petra has lost 70% of its value in 2019. That’s after the stock halved from 79p to 38p in 2018. It would appear that the worst possible outcome is already priced in. The trouble is, it’s impossible to forecast. The Diamond market is into unchartered waters. And so is Petra. No one saw this coming. There is some hope on the horizon with US / China trade talks set to recommence. Should Trump/ China agree a deal, then that in turn could drive confidence in the retail and business sector which results in higher Diamond demand. For now, the jury is out on Petra. And it might take a quarter or two before the market sees signs of stability and life in the precious stone market.

Moving onto other more in demand precious commodities, Gold and OIL are beginning to shine again. As the ShareHUB has suggested on numerous occasions, the Oil market and speculators within it are taking a complacent view at present. Issues with Iran (tankergate) would normally see a $10pb premium added in. As would flaky numbers from US production which quite frankly have been flakier than a chocolate flake for sometime now. Rig count dropping. US production dropping. Strait of Hormuz issues. How on earth Oil is not trading at $75pb (Brent) is anyones guess. Give it time, the market will catch up eventually.

Gold continues to shine. You couldn’t find a buyer a year ago with prices at 1180oz. Now it’s in high demand driven buy weaker bond yields. Money is not likely to flood out yet while the FED Reserve remain dovish. US rate cuts are eagerly awaited by the markets and whilst some would like a 0.5pt cut, it looks like 0.25pts is more likely. Had they waited until September, then perhaps a 0.5pt cut would have been possible. Cutting in July looks a tad early but politically it might help Trump and China talks. The Fed Rate decision takes place today.

Finally, saving the best to last, Amerisur Resources have raised the For Sale flag. Management have already rejected the 17p initial offer which is a bullish message to the market. Multiple buyers/parties are involved in talks so it could take sometime for the advisors to strip out the pretenders from the real contenders. The latter are expected to be OXY, ONGC, GEO PARK and GTE. Amerisur Resources folio of assets is an interesting one. All based in Colombia (with exception of Paraguay) they already feature partners OXY and ONGC. Key infrastructure assets such as the OBA (pipeline to Ecuador) are crucial to the economic story on assets in the south. CPO-5 is seen as a bit of a standalone asset towards the north which AMER holds a 30% stake in with ONGC holding the operatorship. Finding a buyer that wants the entire folio may be tricky. Finding a buyer for individual assets could be the way to go in terms of gaining maximum return to shareholders. Whether that will be all cash or part cash and shares remains to be seen. The majority of II’s involved with AMER would naturally lean towards an all cash offer. If this is the case then it becomes more likely that ONGC, GEO PARK and OXY will make the final bidding rounds. Of course there could be a complete outsider that enters the end game out of the blue but until bids above 17p are announced, it’s all about keeping a straight poker face. Interest in Colombia has shot up of late driven by issues in Iraq, Iran and Africa.

If ever there was a good time to sell up, now is it. This is not a desperate forced sale. Amerisur management are nicely positioned with huge exit bonuses. Which is why a deal will be done. TheShareHUB predicts winning bids will amount to over 26p. But in today’s much sought after Colombian E&P sector, that price could rise as high as 35p. For now, the starting bid is in at half the top price. So long way to go to get there.

Fingers crossed… again!

Independent top picks for 2019 – week 30
Guardian top picks for 2019 – week 30
ShareHUB top picks for 2019 – week 30

ShareHub Hotlist 2019 Review – Week 28

Forget Technical Analysis. Forget Research. It’s official – if you cross your fingers and toes, close your eyes and say please please please… then you really can change your fortunes and determine results. That’s all nonsense of course… but it worked for me during England’s last over of the ICC World cup. It appeared to work for Djokovic too although no luck was needed there, just pure will power and nerves of steel. The truth is, there is a place for ‘luck’ in the stock market. The key is to make sure you don’t rely on it! Because everyone knows, you’ll get lucky once or twice but most of the time you’ll be unlucky. And that’s why the spread bet firms and CFD providers make good money. Research from IG recently showed that nearly 82% of customers lost money. The likes of super fund manager Neil Woodford is a prime example of how the best can soon become the worst. The reality is the Market has a habit of leveling things out if you stick around for too long or become complacent. So if you’ve nailed a few winners of late, ask yourself if your strategy is working or whether you just got lucky? If it’s the former, you’re doing well. If it’s the latter, then you might want to take a break.

Week 28 Review:

As we are now in full summer mode, TheShareHUB has moved to fortnightly updates and will be returning to weekly updates after St Leger Day.

The newspaper picks were a country mile ahead of TheShareHUB top ten but after a few good recoveries by a number of ShareHUB picks, the positions thus far are now very tight indeed. And the best bit… The ShareHUB picks have plenty of strong news catalysts awaiting around the corner. MATD, CERP, AMER, and PMO all have big summer drills coming up. Add to this the recent heads up call on i3 Energy with 3 x back to back summer drills due to kick off in under 2 or 3 weeks, and that’s some summer blockbuster line up to look forward to. But as with all exploration and even appraisal drilling, all will need a good slice of luck and in some cases nerves of steel!

Stock coverage/updates will follow, as and when key news events unfold.

Independent Top picks 2019 – week 28
ShareHUB Top picks 2019 – week 28
Guardian Top picks 2019 – week 28

ShareHub Hotlist 2019 Review – Week 26

Week 26 ended with most market moving action taking place over the weekend at the G20 meeting. The usual rubbing of shoulders took place as Saudi’s shook hands with Russians, Chinese shook hands with Trump and Trump shook hands with North Korea. Lots of hand shaking but the truth is that’s all its been for months and months now. OPEC+ confirmed another 9 month extension which brings the cut in production levels towards its 3rd year. How many years need to pass before the ‘reduced quota’ becomes the norm? The reality is, the cuts have helped but they haven’t boosted Oil prices past $70pb which is where the Saudi’s desperately need pricing ahead of their planned Saudi Aramco IPO. The latter has been postponed several times now and keeps the likes of JPM and Goldman Sachs champing at the bit. But there is talk now that it’s back on the table.

Elsewhere in the world of US oil production (on another planet), data releases continue to defy belief. One week numbers are inline or as expected and the next a sudden 12m+ Draw arrives. It’s as if they thought they would fiddle around for a month delivering Build numbers week upon week before finally being forced to tidy up the book and slip all the Draws into one release. Investors would be wise to ignore the weekly reports and concentrate on the monthly data. Investors should also pay attention to the US production figures which were at 12.3mboepd a few weeks ago delivering significant growth from last years 10.9mboepd. But look a little closer and you’ll see that US Production has been falling. Last weeks data showed US Production falling to 12.1mboepd. This brings growth to a standstill. The last time US production was breaking 12.1mboepd was end of Feb 2019. A quarter of 2019 has past and US Production has gone no where fast. This may change, but after the significant growth phase through 2018, growth has become sluggish at best. This correlates with US rig count data which shows a significant drop in rigs over the last quarter. With OPEC+ Supply cuts set for another 9months, there’s not much room in the market for further drops in US Production. With Brent trading at $62.5pb, that’s asking for trouble if the market is net short. Do not be surprised if you see Oil prices head past $75pb (Brent) in Q3. There’s certainly not much of an argument for Oil prices to be lower than $60pb (Brent) especially with US Fed rate cuts anticipated around the corner.

Week 26 Review: The Independent and Guardian top picks continue to bat it out. Markets are at all time highs yet many stocks still seem sluggish especially across commodities. When the sun shines, risk assets become less attractive and money tends to flood to safer havens like Gold. That said, due to unattractive Bond yields, money is being forced into some riskier trades with crypto’s back in vogue. Crypto’s v Bonds? It’s like Nick Kyrgios v Tim Henman.

TheShareHUB picks are still flatlining awaiting key summer drill catalysts to get the juices flowing. Stocks like MATD, CERP and AMER are all expected to drill potentially transformational wells this summer. TheShareHUB’s recent heads up pick I3 Energy (I3E) is also another hot summer pick with 3 key drills planned over a busy 90 day period starting with the first well due to spud end of July or early August. Finally, watch out for PetraDiamonds Full year results due out in 3rd week of July. The stock has struggled to regain some impetus and momentum since completing their refinancing/rights issue last year at 41p a share. Trading today at 19.2p, the stock is a significant distance from Goldman’s Sach’s recent Buy rec and Target of 32p. In June, the CEO bought stock at 21p which was seen as a strong signal ahead of July results. The small sized diamond market has been under pressure from oversupply and lower pricing but Petra is a little different in that they have moved away from smaller diamonds and have targeted the larger sized stones and had recent success with some whoppers this year. Whilst largely historic, results will put a line under 2018/2019 trading year and the market will be keen to see guidance for 2019/2020 outlined from the new CEO with a view on reducing debt being top of the priority list.

Roll on next week.

Independent top picks 2019 – week 26
Guardian top picks 2019 – week 26
ShareHUB top picks 2019 – week 26