SOCO International - market will eventually wake up to the value. A buy says Gary Newman

Would you Adam & Eve it – today’s nightmare for Neil Woodford HERE

At times in the lower end of the natural resources sector it seems as though the worse the company is, the more money private investors are prepared to put into it. Often it is the complete junk which sees big rises in share price, whilst the companies which are actually performing well don’t seem to attract much attention, but inevitably, if you invest in junk then you will end up getting badly stung one day. SOCO International (SIA) falls firmly into the category of companies that are actually doing well but which don’t seem to be all that popular, and in my opinion it is one of the most undervalued outfits of its size.

SHOCKER! AIM roll-call of results not published & suspension shame. Read HERE

It did attract some interest at the start of the year when news broke that it was in early stage discussions with Kuwait Energy over a possible merger, but eventually those talks broke down and since then the share price has been showing weakness, despite oil prices being high. I think the business looks very strong, especially since it has streamlined its operations with the disposal of its interest in the Congo for $10 million recently, whilst retaining a royalty over any future production. The deal with Coastal Energy is yet to complete but I would expect it to all go through as planned. The share price looks weak at the moment, having pulled back to around 97p, despite oil doing well in general and trading in the $70-80 range consistently, for Brent.

Purplebricks – a smokescreen ahead of Godawful results in the land of the deluded dope fiends (Canada). Read Tom Winnifrith HERE

But other than a general lack of interest and low daily trading volumes, it is hard to actually see any reason for that weakness, which for me makes the shares a strong buy. The most recent trading and operations update showed that the company is continuing to perform strongly, and its Vietnam assets averaged 7,948boepd, net to SOCO, up until the end of May this year, and it is still anticipating hitting its guidance of 8,000-9,000boepd for the full year, with production costs of around $14/barrel. It is about to embark on a further drilling campaign on its producing TGT and CNV blocks, as well as further evaluation of its 70% owned exploration blocks 125 and 126, with the aim being to drill a well possibly as early as 2019. At the end of May it had $150 million in the bank, and although it is anticipating spending around $40 million on capex this year, profit from its operations will be on the increase as long as oil stays in the current range, especially given that it typically receives a premium to Brent for its oil.

Julie Meyer spotted in London as Henry Gewanter steps up action with claim against Ariane Industries. Read HERE

So, whilst we aren’t going to see any sudden big rises in production at the moment, the company will perform very well as it currently stands and looks cheap at a valuation of around £330 million. Not only do I see plenty of potential for a share price rise from here, but ithe shares also pay an attractive dividend yield, currently equating to in the region of 5%. So if you’re looking for an undervalued oil company in the current bull market, then this is definitely one to add to your list at the current share price.

ShareProphets readers tips for 2018 competition - half-year update HERE

Filed under: SOCO International, Eve, Neil Woodford, AIM results suspension, Purplebricks, Julie Meyer

2018-07-02 11:04:04

Latest Tips