A quiet week all round. Markets continue to tip toe to all time highs without the usual media fanfare. Quietly does it… and hopefully no one will notice! That’s probably the best way to go because if there was ever a time for markets to be heading to all time highs, NOW would most certainly NOT be that time. US growth is slowing. China growth is slowing. Trade talks are drifting along. Brexit is drifting indefinately. The EU are economically on their knees (just look at the numbers coming out of Germany) and yet they seem to be keeping a cool poker face in all of this. The reality is, they need the UK more than the UK needs them. You wouldn’t know it listening to Barnier and Tusk. The EU is in big trouble and as this game of chicken nears the end, another surely begins. The only way to get a deal done that suits the UK is to set a deadline for the EU and change the table of events. If Brexit talks 2.0 begin with a new deal to be discussed, then a deadline has to be written in stone this time. No one gets to move it and only then will you get a result that suits both.
Week 13 Review:
Amerisur Resources surprised the market with a duster at Calao-1x. It was exploring the South West area of the Indico-1 discovery and quite ambitious based on location. Had they drilled a little closer to Indico-1 (SW) they may have had greater success. It’s no surprise to see the company moving towards this strategy with the next well which is cited as Indico-2, an appraisal well which should be low risk. Across the rest of the folio, AMER is making progress with workovers and boosting production in the process. The drop in share price looks a bit knee jerk rather than well founded and a recovery should be expected especially with the bumper filled 2019 operational plan. Investors will not be bored with this company especially with potential predators sniffing around the licence blocks. AMER will announce FY results on April 9th.
Petra Diamonds has been in the wars of late with lower revenue numbers and a share price that has halved since Jan 2019. Recent success with some gigantic sized diamond discoveries seem to have been batted away with the usual market nonchalance. I suspect a few are NET ‘short’ and are in no mood to change direction yet. A few more large discoveries and that mindset will need to change. At 18.5p, PDL are looking very cheap. Debt is a concern but recent falls look overdone.
PoO’s inevitable rise back to the $70’s is upon us. OPEC are due to hook up for a review in 2 weeks (April 17th) and if they maintain cuts or even increase them, then PoO could be off to the $80’s again. Higher prices bodes well for the high debt E&P’s. Tullow, Premier Oil and Enquest have all done well of late. Although the latter is still trading where it was when PoO was in the $40’s which is puzzle. Concerns over Kraken continue to grow and the company needs to ensure that performance this year is kept to guidance. Anything under guidance and the market may well crucify ENQ regardless of PoO prices.
Roll on next week and ISA season. New allowances will be available from April 6th. Buy selectively and always consult your broker regarding potential timeframes. It’s a busy period for many but usually calms down pretty quickly after the initial wave is done. Sometimes, it can be beneficial to wait for the dust to settle but always invest/trade to your own strategy and if unsure consult a regulated FCA advisor.
Good performance from TheShareHUB picks boosted by the recovery of CERP.L which has been long overdue. A minor pullback across the major indices has seen the DOW, S&P and FTSE all drop off from their 2019 peaks. This has dented performance across the newspaper picks which were doing very well since the year commenced. As highlighted before, end of quarter trading (particularly end of UK tax year) tends to be a bit choppy with volume and direction picking up from April 6th with minor dip for Easter period. Then comes the summer drift months and a return to action come St Legers day and the usual bonus ticking run into Christmas period. Of course, it’s not always that predictable but at present with the Fed Reserve seemingly happy to sit on their hands through 2019, markets have very little impetus or fear to trade with or against. US/CHINA trade talks drift along. Brexit drifts along. Global growth stutters and yet all through this markets trade like a finely tuned autobot algo. Is anyone actually out there? Hello?
Week 12 review: TheShareHUB picks take the lead (for now). It wasn’t that long ago that PMO was trading like a Brexit MP – Unwanted and quite frankly getting no where fast. The stock is now up over 50% from lows seen earlier in the year. There should be more to come from PMO in 2019 and many other ShareHUB picks should soon be budding into the warmer spring climate. Results season has already kicked off with Enquest and PMO reporting solid progress. This will keep senior debt holders happy and in Enquest’s case, buy some much needed time. Fears over debt defaults and covenant issues seem to have disappeared for now. Enquest have Magnus to thank for their survival and PMO have the EoN deal underpinning their recovery. Without these deals, both would have likely fallen into debt holders hands. Since the recovery years of 2016 to 2018, Oil has began to find a solid footing despite US shale production rising a further 15% to 12mbopd. Yet the all important M&A in the sector remains elusive. After Faroe/Ithaca deals over last 2 years, only Ophir Energy of late has succumbed to a cheap predatory approach. If the Oil market continues to stabilise then M&A should be alive and kicking again. The likes of AMER, PMO, TLW, ENQ and many others could all be of interest to deep pocketed mid tier players. Elsewhere across the miners, SOLG continues to attract interest and surely their days are beginning to become numbered. BHP and Newmont the likely candidates. SOLG will be keen for more time to prove up their world class assets but in this market, time is not something that comes along for free. SOLG will soon be faced with a decision to make regarding future development plans and subsquent funding. In reality, the prospect of seeing the assets through to production based on a 100% interest looks impossible. It’s a big boys project and deeper pockets are required to help fast track development/production in a way that pleases all stakeholders including the Ecuadorian Government.
Spring is in the air and commodity focussed stocks are beginning to look a little more sprightly. Premier Oil is showing signs of strength again as higher oil prices and strong production make for an excellent combination. Investors are still a tad wary over a potential big purse acquisition as per newspaper article some weeks ago linking PMO to Chevron north Sea assets which are up for sale. Oil prices continue to stabilise after the rather idiotic fall to $43pb on WTI some months ago. The market doesn’t seem to do ‘sensible’ anymore. It’s either extremely positive or negative with not much inbetween. That said, while Trump and China dot the i’s and t’s on a trade deal, the broader market looks content to just trade in a tight range. Gold and metal prices have pulled back a little on growth fears and risk reduction. Miners are struggling to make headway especially the minnows. Some early producers have lost momentum. WRES and WSBN, both part of the ShareHUB top ten for 2019 are suffering from delays and slow newsflow. Unless good news is forthcoming, the drift will continue for these two although both look quite cheap at present and a bounce would not be unexpected providing further warrants are not issued.
Earnings season will soon kick off again as Q2 is just weeks away now. For many stocks, it’s a period of wrapping up the figures for 2018 and looking forward to 2019 progress. Whilst historic (as we are already 3 months in) FY results provide investors with a fairly good idea of cash balances/debt and whether any funding is required going forwards. It’s probably been around 6 months since the last meaningful update (interims) so that’s a long wait for even the most patient investor.
Just 2 weeks to go before ISA season is up and running again with new allocations being available from April 6th. It’s always a good idea to check with your broker on timelines for getting ISA deals done and also contacting your tax advisor regarding CGT exposure/liabilities.
Week 11 Review: The Independent remains unmoved at the top. It’s much the same as last week. TheShareHUB picks should begin to accelerate as the drilling season (fair weather) approaches. CERP, MATD, AMER, PMO, SOLG to name a few from TheShareHUB top ten picks, all have eventful spring/summer operational plans lined up. Bodes well for an exciting Q2.
A quiet week with Trump Korea talks taking the headlines. Markets appear to be treading water ahead of the much awaited China / US trade tariff discussions. With the DOW at lofty heights already, much looks priced in. Should further delays occur or the mood music change significantly, markets could be set for a hefty sell off. Global growth has slowed dramatically over the last 3 quarters largely due to Mr Trump’s trade war with China. Assuming Trade talks end amicably, global growth is expected to be modest at best. China have already downgraded growth projections to around 6% to 6.5%. That’s still extremely strong in the context of other leading economies. The chart below shows how the decline is expected to continue over the next 3 to 4 years.
Last weeks US oil inventory report showed another rise of 100kboped to 12.1mboped. US production is flying high. In Feb 2018, US production was 10.2mboepd. In just 12 months, US production has risen a dramatic 2mboepd. If it wasn’t for Venezuela’s woes, Oil prices would be under heavy selling pressure as supplies continue to flood the globe against a demand backdrop that looks stagnant at best. With US growth set to slow too (assuming reductions in fiscal stimulus policy), OPEC will be hoping that US shale is at peak levels. The problem for OPEC (and RoW) is the level of confidence in the US production figures in the first place. Many have suspected for sometime that these numbers are not quite what they seem. It might take another 12 months+ to test the US production peak production theory which is based more upon infrastructure constraints. It’s unlikely that OPEC will be changing course on recent cut levels/quotas while US production rises. It’s a wait and see game for now but with supply/demand balance very close to an even bias, any global risk, such as unrest in MENA region or with India/Pakistan issues could have dramatic effects on Oil prices. Trump’s lack of sanctions on Iran is also weighing on investors minds. It’s a delicate issue at present and the market is not pricing in any premium for a global risk events.
Market sentiment towards Oil and Gas E&P’s is weak at present. Many large institutional holders are staying away from risk assets. But not all. Schroders bought a sizable stake in Columbus Energy (CERP) last year at 5p and more recently at 3.5p. With the stock currently trading at 2.4p, it shows that Schroders (like many) often time their entry points wrong. But if all goes to plan with CERP, 2019 should be the year the company transforms itself albeit with the drillbit. With stock supply low, it often only takes a few high trading volume days to see the prices double and return to 5p again. Columbus investors should be due an update from the company at the end of March (3 weeks time). Many will be keenly looking for confirmed dates and plans for a summer exploration well in the SWP region, Trinidad. CERP is part of TheShareHUB picks for 2019.
Elsewhere among the 2019 ShareHUB picks, AMER and PMO edge closer to revealing news on their respective exploration wells. Watch out for news coming over the next few days on the above.
The 6 mining picks in TheShareHUB top 10 are struggling to find interest. Many have traded flat for the last 2 months. Petra Diamonds being the worst performer after a poor update and heavy hit from the rising RAND. SOLG remains TheShareHUB’s top pick for M&A this year. With the likes of Newmont, BHP, Barrick and others all doing their best to try and eat each other up, SOLG has attempted to bolster itself against cheap predatory offers by offering to take over Cornerstone Capital Resources 15% stake in their Cascabel copper-gold project, Ecuador.
It’s a smart move but will Cornerstone play ball? Will BHP or Newmont offer Cornerstone a better deal? Certainly one to watch.
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Oil focussed equities continue to look sluggish against a strengthening Oil price. An odd situation indeed. Normally, if PoO moves up 5%, equities would follow but with gains double that level or triple it. Premier Oil as an example, was trading at 145p the last time the DOW was in the 26000’s although that was with PoO above $80pb Brent. Today, PMO trades at virtually half that price in the low 70’s. Does a near 50% drop really justify the $15pb drop in PoO from highs? Of course not. But that seems to be the trend of late. Equities get hit hard on any retraces in Oil Prices yet fail to bounce or firm strongly upon Oil Price rebounds. The market is in no rush to get this disparity resolved. Ophir’s recent woeful sale at a huge discount to asset values has done very little to help. PMO has proven assets such as Zama, Tolmount, Sealion and more. Yet the market is pricing these at near zero. It’s a harsh environment despite many debt laden companies trimming capex, reducing debt, boosting production and through streamlined measures increasing their margins. In this kind of market, Oil companies need to think differently about shareholder returns. Reducing debt used to be (and still is in some cases) the main objective, but many of these businesses are cash flow positive and capable of reducing debt while also dishing out Dividends. Tullow recently confirmed a return to dividend payouts (or special dividend). After years of capex investment, exploration wells, boosting production and so on, Premier Oil last issued a dividend in 2013 to shareholders. It’s been a long slog and near life death experience for the company since late 2014’s Oil bubble popped. But after 6 years of hanging on by the toenails, Premier Oil should be looking at returning some cash again whilst paying down debt. Growth companies have long stood by their stance of reinvestment is the key to greater growth. Well… history shows this is not true and perhaps the Oil company growth strategy needs rethinking for the 2020’s. To get investors back into Oil stocks, companies need to deliver incentives. A return to divi’s for some might just be the answer, or at the very least…some form of share buy back system.
Week 8 Review: TheIndependent remains firmly at the top with solid gains helped by the FTSE’s climb from January lows. A combination of Trump/China trade talks and North Korea issues have helped US markets return to near all time highs. And that’s despite the demise of Apple’s iphone and subsequent poor sales figures. Apple’s share price was $140 just a few months ago and rightfully so. Yet today, the price has risen back to $175 a share. $35 gain a share doesn’t sound too much to get excited about but in the context of Apple’s market cap, it equates to a whopping $166bln. And that’s a business that is on the decline due to slicker and faster products via competitors like Samsung and Huawei. Crazy… you have a market that is at ease dismissing 300mmboe+ oil reserves for ZERO (Sealion/PMO/Rockhopper) and yet completely satisfied to see a poorly performing company jump $166bln in market cap for no reason at all. In fairness, it’s not quite that simple. One of the reasons why the likes of Apple get bought into, is down to the algo’s/bots/ETF’s/Trackers and so on. There’s so many other market products out there based on buying into top tier stocks, that if the DOW goes up, then generally speaking so does Apple despite its Nasdaq listing. Some might say it is too early to say whether Apple has peaked. But looking back, Nokia, once king of the mobile phones fell away quickly. Sony… king of the Walkman…unthinkable at the time, but soon left behind. Apple might be able to stop the rot but that has to come through pricing. Selling phones for £1000 is ridiculous. Selling phones for £200 looks fair value today. Plasma screen tv’s that sold for £5000 some years ago, now sell for £500 and they are more advanced and better quality today.
So in summary, If the DOW goes up, resources/commodity stocks stay where they are. If the DOW goes down, then Resources/Commodity stocks go down. If Oil rises, Oil focused stocks improve but barely match PoO’s rises. If PoO falls, equities fall harder in percentage terms. Damned if you do and damned if you don’t! Suffice to say, it’s tough going out there for commodity stock investors. Not much reward at present and plenty of risk. But that should change in time… and would certainly be helped by a dividend or share buy back by a few cashed up sector players out there. But managing debt piles should remain the number one goal for many. With Saudi Aramco IPO still very much in the mix, the Oil market/price looks like heading for a period of stability somewhere… in the highs $60’s to $70’s. That bodes well for the sector.
An exceptional week for TheShareHUB picks with a whopping 12% gain. The majority of gains can be attributed to PetroMatad – The first to multibag in 2019. With equities lagging behind the recent resurgence in Oil Prices/Gold Prices, TheShareHUB picks had experienced a quiet period over the last few weeks. Short termism has turned the markets into more of an entertainment circus rather than the usual casino with flashing lights. Investors today become impatient all too easily. Like an addict looking for the next fix, Retail investors tend to seek news nearly every other day. Investing can be a rollercoaster, but it wouldn’t hurt a few to take a page out of Mr Buffet’s book and look to mid to longer term expectations. PetroMatad is probably a classic example of the current herd mentality out there across many AIM listed stocks. Last year the share price was trading at 6.5p before the last exploration well hit dust. A disappointing result, granted. But the drop in share price from 6.5p to 1.7p was heavily overdone. PetroMatad at the time had over £15m in cash which equated to approx 2.2p. That priced the multi-well exploration plan in 2019 at zero. But try telling that to a Retail investor in mid November 2018 and the answer you would get would be simple… “Yes.. attractive, but there’s nothing happening here for at least 6 months so I’m off “… is the usual mantra. Followed by… “I’ll come back later next year.” There is nothing wrong with trying to make cash work elsewhere while some stocks go into a dormant period. But is Mid Nov18 to Mar19 really that long to wait? Of course not. PetroMatad’s rise from 1.7p to highs of 6.5p in just under 5 weeks is not a surprise to some, but a mystery to many. The ‘many’ being those that thought they could buy back in weeks before the next drill plans get underway. The trend of late is a telling one. Retail investors are beginning to realise that ‘getting in early’ really can be rewarding and help derisk going into quite volatile share price periods as exploration wells get underway. Other examples like Providence Resources 8p to 16p prove that point. Investors would be wise to seek out stocks that have communicated ‘active’ high impact exploration plans for Q2/Q3 2019. There is always a risk that plans change and the focus on exploration reduces so risk is very much on the early birds side. But the rewards can be significant although it can test the patience of news hungry investors. Many of those seeking constant signs of progress through share price movements can become frustrated and should perhaps look more closely at the company / business and concentrate on the calendar of events/catalyst ahead.
Look out for potential drill result news from Premier Oil (ZAMA-2) and Amerisur Resources (Calao-1x). The latter has been treading water around the 17p level and the market appears to be pricing in zero for the Calao-1x well which seems odd considering the proven success at Mariposa-1 and more recently with Indico-1. With more wells to come in and around the CPO-5 block, a duster would not be the end of the world. Infact, the importance is more about discovering (or not) the OWC (oil water contact) as well as seeking potential borders of the oil resource. The next few wells on the CPO-5 block will help define the development plans going forwards and the discoveries to date are already very significant and sizable. Something the market has yet to pick up upon.
Another stock frustrating investors is Columbus Resources (CERP). The stock has drifted down from 6.5p levels to just 2.5p over the last 8 months and this is despite the company doubling production. Dilution has taken place but with an active planned Q2/Q3 exploration phase, the company should soon see some ‘herd mentailty’ return as Retail investors begin to get in ‘early’. CERP need to confirm in more detail the plans for 2019 and that’s the problem at present. Not enough commitment or detail from the company. Solve that, and investors will come. With a market cap of just £21m and approx 1000bopd production, near zero debt and approx £2m in cash, CERP could be the next stock to Multibag from TheShareHUB picks for 2019. Risks remain as always so make sure you do thorough research.