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Investors in pretty much any Oil E&P stock – major or minor - over the last few years have veritably had their backside handed to them.
From majors like Premier Oil & Cairn Energy to midcaps like Gulfsands Petroleum, Gulf Keystone Petroleum, Xcite Energy and Providence Resources to the minnows such as Enegi Oil and the Falkland’s plays like Rockhopper and Borders and Southern, price falls of 80% + have not been uncommon.
Those stocks that have drilling programs ahead of them and balance sheets that cannot presently support the costs, hence the need for farm-outs, have been punished the most. Take Rockhopper and Bowleven for example. Even where they have achieved farm-outs and thus dramatically increased the prospects of first oil and positive cash flows in the future, the stocks have continued to fall. Indeed, such has been the fall in the sector while the oil price has remained resilient, that the aggregate industry 2P (proved and probable) reserves relative to the oil price is at the lowest it has been almost on record.
In looking at a whole host of “value” Oil E&P stocks this weekend, what stands out like a beacon to me however is that almost universally the stock prices are refusing to go lower and indeed display the classic signs of the very end of a bear market/the beginnings of a bull market.
I show below the share price charts of a wide disparity of oilies with operations in multitude parts of the globe and various annotations being made.
BORDERS & SOUTHERN WEEKLY CHART
CHARIOT OIL & GAS WEEKLY CHART
FALKLANDS OIL & GAS WEEKLY CHART
GULFSANDS PETROLEUM WEEKLY CHART
PREMIER OIL WEEKLY CHART
ROCKHOPPER EXPLORATION WEEKLY CHART
XCITE ENERGY WEEKLY CHART
OPHIR ENERGY WEEKLY CHART
Notice anything in common? The price patterns are all “basing” formations where volume has risen in recent months and the RSI’s too while the stock prices plateau or have begun moving modestly higher. Coupled with the exceptional fundamental value this is a combination of both technical and fundamentals aligning in tandem – something we pay very close attention to. Bear markets don’t go on for ever and at some point value becomes so compelling and sentiment so depressed that the easiest path then is up. We believe we have reached this point in this sector.
In our Natural Resources fund here at Titan we are heavily overweight Oil E&P plays now, holding positions in many of the stocks mentioned here, and at present we are geared around two times – towards the upper end of our limit of X 2.5 such is our conviction that the sector is now at the ground floor of a multi-year ascent. We hold a well-diversified portfolio of what we believe are exceptional value plays and that we expect to deliver strong capital returns over the next 6 – 18 months.
Below is a chart of our returns, against a difficult backdrop for the sector, since inception on 1 July 2013 to 22 Aug 2014.
Past performance is not necessarily a guide to the future. Returns are gross before the application of Titan’s fees.
If you’d like to join us where we invest our OWN capital in backing our views, and best of all, positive returns are completely TAX FREE*, then click the image below for more details or email us at email@example.com
This piece should not be taken as an advocation to buy (or sell) these instruments and you should always take independent financial advice in relation to your own circumstances. *Spread betting is currently tax free but legislation can change.
We have written about PVR.l twice now, HERE and HERE, where our perception of the massive disconnect between the underlying asset value and the share price is set out clearly in those blogs. For more indepth analysis, the company usefully provides research from a number of brokers on this page HERE.
We won’t regurgitate the valuation story again, but pick up on the commentary from the AGM this week in which frustrated shareholders put it to Providence’s Board that as the farm out process at their primary field - Barryroe was taking so long, just what were the prospects of this now being brought to a successful conclusion.
CEO Tony O’Reilly was quoted as saying “…Barryoe farmout process is now nearing completion” and additionally - ”...it is not reflected in the company’s share price”.
Well, they say the chart “never lies”. Take a look at below…
Without trying to usurp our dear and venerable Editor Mr Zak Mir, I would contend that it presently displays what is known as a classic falling wedge. These wedges that are of the “falling” variety are supposed to resolve themselves to the upside, particularly where there is supportive strong volume on the up move. That ladeez and gentlemen’s is what is evident here. Additionally, the RSI rising above 50 combined with the rising 17 day exponential moving average sprinkles further classic charting clues into the picture.
The 135p level is now the nut to crack and I also see what is known in the trade as a “cup and handle” formation in recent weeks - another bullish sign. It seems like the stock was being bought quite happily into as the day progressed today with blocks of 20’s and 50k’s going through - frequently a sign of those “in the know” getting in.
IF the wedge breaks next week and 135p is taken out, the chartist’s target is 200p+. With broker notes suggesting real value of £5-7+ it will be fascinating to see how this plays out in the weeks ahead…
CLEAR DISCLOSURE - EXPOSURE TO PROVIDENCE RESOURCES IS HELD WITHIN TITAN’S FUNDS AND PERSONALLY BY RICHARD JENNINGS.
Zak Mir Video Blog On Bulletin Board Heroes: Evocutis, Lansdowne Oil & Gas, UK Oil & Gas and Xcite Energy
CLICK THE IMAGE BELOW TO VIEW TODAY’S VIDEO
Spreadbet Magazine editor Zak Mir takes a look at the technical position of some of the bulletin board stocks of the moment amongst private investors.
Here are the key points from today’s video:
Evocutis shares are understandably overbought after an ultra sharp spike, with the RSI at 90 plus.
The expectation is for a dip to buy into towards the mid 0.3ps with the bull argument intact while the 200 day moving average at 0.26p is held.
A top of January price channel target as high as 1.2p is the 2-3 month is possible.
Lansdowne Oil & Gas (LOGP)
Shares of Lansdowne Oil & Gas finally deliver a sharp move to the upside after an extended base in August towards the 20 day moving average at 11.29p.
The floor of a rising trend channel from February towards 11p remains key in terms of the recovery argument.
At this stage only back below the 20 day line delays the prospect of a return towards the May resistance / 200 day moving average at 19p over the next 2-4 weeks.
UK Oil & Gas (UKOG)
Surprisingly consistent performance by the stock within a rising June price channel based at the 50 day moving average at 1.09p.
The best case scenario is that we have no end of day close back below the 50 day line ahead of a push to the implied 2p target over the next 1-2 months.
Only cautious traders would wait on a break of 1.3p plus as momentum buy trigger.
Xcite Energy (XEL)
Persistent basing towards the 60p level since the end of March.
The best case scenario is that we have no end of day close back below 60p ahead of a move towards the 200 day moving average at 81p over the next 2-4 weeks.
The price action is well backed by an extended March uptrend line in the RSI window towards 50.
CLICK THE IMAGE BELOW TO GET ZAK’S TOP 5 CURRENCY PICKS FOR H2 2014
Barclays (BARC) - has agreed to sell its Retail Banking, Wealth and Investment Management and Corporate Banking businesses in Spain. Has also completed the sale of its UAE Retail Banking business to Abu Dhabi Islamic Bank.
British Land (BLND) - Regent’s Place, its 13 acre mixed-use campus in the West End, is fully let with The Guinness Partnership agreeing terms for the final remaining accommodation at 30 Brock Street.
Kier (KIE) - the Construction division has been appointed by Knight Dragon Developments Ltd as the preferred bidder to design and build a new £50m residential tower on the Greenwich Peninsula, one of the largest regeneration schemes in Europe.
Grafton (GFTU) - has completed the acquisition of Direct Builders Merchants Ltd, a general merchanting business trading from three branches located in Sittingbourne, Whitstable and Ashford in Kent.
Berkeley (BKG) - Earnings this year are anticipated to be in line with current market expectations.
Fastjet (FJET) - is launching flights between Dar es Salaam and Entebbe. Entebbe is fastjet’s fourth international destination and the new route will be the only direct air link between the two African capitals.
Vertu Motors (VTU) - has continued to trade in line with market expectations.
XL Media (XLM) - announces the acquisition of ExciteAd Digital Marketing, a leading social and mobile gaming marketing company, for a consideration of up to $19 million in cash and shares.
Benchmark Holdings (BMK) - Animal Health division has entered into an agreement with HypoPet AG, a Swiss research company based at the University of Zurich, for the final commercialisation, manufacture and distribution of a breakthrough vaccine for cats, HypoCat®, which neutralises the Fel d 1 protein, the primary cause of human allergic reaction to cats.
Crimson Tide (TIDE) - has signed an agreement with one of the world’s largest food companies which will last in excess of three years. The new agreement is expected to equate to a minimum of £250,000 of contracted margin revenue over the term for the company and demonstrates the increasing scalability of the mpro solution.
Regular readers will be aware that I wrote about Blinkx recently HERE and opined that as the stock price has fallen away further in recent weeks from the last shot of Director’s buying, that the absence of renewed purchasing by the Board, even in the face of reassuring noises from management about their business was curious. Time will tell on that one as to whether this is due to their being “restricted” or whether the stock has another lurch lower to come.
Another stock that we have also covered here is London Capital Group the spread betting and CFD company. It is fair to say that this has been a classic value trap over the last 2 years. The negative enterprise value has enticed me personally into the stock and I have watched, aghast as the company has continued to flail following the departure of Simon Denham as CEO last year. Shortly after Mr Denham’s departure there was an ill-fated tenure as CEO by Mark Slade and who, to give him his dues, actually initially showed his faith in his ability to turn the ship around through purchasing a couple of decent tranches of the stock.
Slade however made a swift exit and one Mr Kevin Ashby was wheeled in. At this stage, it is worth pointing out that serial non exec Giles Vardey has been Chairman for the last 2 years and again, regular readers of this site will be aware that he presided over a monumental destruction of value at Plus Markets. Note to oneself – in future, if Mr Vardey is in situ as a Non Exec, do NOT get involved!
What is curious with LCG however is that the deal with Mr Henri-Sabet, who has effectively pulled off a “take under” of the company by way of his convertible loan injection and where he had to buy votes of Artemis and Mr Denham through committing to buy stock of them at 35p to get the convertible loan proposal through (many other shareholders would have no doubt liked this offer…) is just why Messrs Ashby and Vardey have not put their hands in their pockets and shown their faith?
I met with Mr Ashby in mid-summer and made clear my own concerns over the deal. Needless to say Mr Ashby was at pains to try assuage me that the deal is in the interests of ALL shareholders and what a jolly good chap Mr Henri-Sabet is and how he is looking to create a financial powerhouse. All hunky dory I’m sure. The jury’s out on this deal and only time will tell if it is to be a success but I left Ashby clear in no uncertain terms that “talk is cheap” and that he and Mr Vardey should send a message loud and clear to his long suffering shareholders that this deal has a chance of restoring value and at the very least getting the stock back to a positive enterprise value!
Mr Ashby, your shareholders are waiting for you to show your confidence in this deal and buy some stock from your not inconsiderable salary.
CLEAR DISCLOSURE – Richard Jennings and Titan funds have exposure to London Capital Group shares.