Current market conditions are bad for many companies, with the oil and gas sector having been hit particularly hard as prices have crashed... but this can create opportunities for some companies. Whilst the low oil prices that we are currently seeing - and possibly even lower still to come as the recent supply deal is insufficient to reduce enough output to match demand - are bad news for any existing producers, and will be putting strain on them financially, those companies sat on the sidelines with a decent pot of cash could benefit. In particular companies at the lower end of the market, I believe, as some producers will dispose of their non-core assets – especially some of the smaller, less important ones. Whilst these type of assets aren’t of great interest to larger companies, they can prove to be very lucrative to small companies – as long as they choose the right ones to buy...
Obviously, companies with spare cash looking for acquisitions need to avoid blowing the cash on assets that weren’t very good to start with, and need to buy ones that have good potential but appear to be at a knockdown price. This was very much the case with one of my best ever share tips, Sercia Energy (SQZ), which went from 5p to around 150p, having bought the Erskine field from BP at a time when oil prices were low and then reaped the benefits from it when prices recovered. That is the perfect example of the type of asset that small companies need to be looking for, with decent reserves and remaining life, fairly low operating costs and the chance of further cost reduction and where a large operator is happy to see it taken off of its books. In the case of Serica, BP even loaned it money to help with the acquisition and work! Looking on AIM, there aren’t actually that many companies in this position as they tend to either be explorers in need of large sums to drill or producers who will have taken a hit recently and the majority will be looking to preserve cash. One which I do think fits the bill though is Sterling Energy (SEY), ignoring its 34% share in the Odewayne licence in Somaliland, and concentrating on the amount of cash that it has in the bank and that it has actively been looking to make an acquisition for some time now.
I would ignore the Odewayne licence for now, although it could be of interest in the future as Genel Energy owns 50% and is the operator as well as carrying Sterling for the cost of the first well which has to be drilled by May 2022 unless the existing production sharing contract terms are extended. What is of real interest to me currently is the fact that it had $44.9 million in the bank as at the end of 2019 and with no debt. The company also runs on general and administrative costs of around $2.6 million, and so isn’t rapidly eating through its spare cash – even less so when you take into account the finance income of $1.1 million that it received for the year, which partially offsets the running costs. The full year report for 2019 mentions that the company has reviewed 50 opportunities for acquisitions and placed bids for five of those, with a number still under consideration, and it is quite possible that the owners of some of these assets may be more inclined to sell now – and quite possibly at a more attractive price for Sterling. For me, that bodes well that some sort of deal will end up being completed and then it all comes down to management acquiring a good producing asset rather than blowing money on exploration licences or an old, depleted, marginal field.
As you would expect for this type of company, it hasn’t been affected much by the market crash, although its shares are trading slightly lower at around the 8p level. That gives it a market cap of £18 million versus cash of over £35 million, which seems crazily cheap to me – especially as the amount of cash that it does have is enough to actually do something with and make a proper acquisition. This is typical of this type of company where volumes and liquidity are generally very low on a day-to-day basis, and sometimes they can drift far lower than seems logical. Based on all of this and the current market conditions, I definitely view Sterling as a buy at today's share price, offering great value, as long as it is able to complete an acquisition on favourable terms and make the most of the current situation in the oil market.
Filed under: Sterling Energy, ShareProphets Radio, Premier Miton, Haydale, PZ Cussons, URU Metals
RISK WARNING & DISCLAIMER - FiveFreeShareTips.com tips are provided by independent authors via a common carrier platform and do not represent the opinions of FiveFreeShareTips.com. FiveFreeShareTips.com does not accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at FiveFreeShareTips.com and via emails you receive from [email protected] are for your general information and use and are not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by the tipsters or FiveFreeShareTips.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Trading shares involves the risk of loss. The tipsters and FiveFreeShareTips.com shall not be liable for any losses or other damages incurred. The value of investments can go up or down and the past is not necessarily a guide of future performance.
Well actually it will be six. One every week day and one on Sunday, each landing with you at 11 AM sharp.
Unlike other services (which may always have a vested interest) we pride ourselves on our impartiality and cover all small caps including AIM. the Standard List, The Wider Main Market and NEX.
We cover small caps, penny shares, FTSE 350 stocks and blue chips. We look for red hot penny shares, Warren Buffett style value investments with yield and growth stocks. There is no technical analysis in our work just solid fundamental analysis from a team of experts with decades of stockmarket experience.
You will not agree with all we publish but if you are interested in small caps you cannot afford to ignore it either. Yo'll never be charged for the free share tips from Five Free Share Tips and given the star writers involved you know that they will move share prices.
There's no telephone number or postal address required and there is no charge, ever, for your Five Free Share Tips membership. Just free shares tips every day apart from Saturday And each day's share tip will not just be a few thoughts cobbled together but will be detailed analysis from experts.
Our experts do not just earn their living from writing. All own shares. If they own shares in a stock they cover they will declare it and will not sell until after advising a sell to our readers. And why not our tips are so good that why shouldn't our readers put their money where their mouth is?
Don't just take our word for it! Judge us on the calibre of our free share tips and join today to start receiving them from September 1 2017. If you don't like what you get delivered to your inbox unsubscribe and you will never hear from us again. So why not give it a go? Sign Up Now
We've put together a panel of top tipsters, including:
Tom Winnifrith, in his 27th year writing about shares, noted fraudbuster & dubbed "The maverick Tipster"
Chris Bailey, City whizz kid turned financial guru, rated as one of the top 50 commentators on shares on twitter, founder of Financial Orbit
Steve Moore, has worked with Tom Winnifrith for all bar 3 weeks of his working life - a noted commentator on value stocks
Malcolm Stacey, The Grandfather of Share Blogging, the founder of ShareCrazy & a best selling autthor of stockmarket books
Lucian Miers, the Bard of the Boleyn, one of the UK's best known short sellers
Gary Newman, writes about value investing on AIM, speciality is in share tips on oil and mining companies
Nigel Somerville, The Deputy Sheriff of AIM, an expert in forensic analysis a skill used to bust frauds but also to tip true value investments
The team from HotStockRockets, specialising in AIM and small cap shares which will fly on a three month view
Remember to book your place at the UK Investor Show 2018. The UK’s top investment show taking place on Saturday 21 April 2018 at the Queen Elizabeth II Conference Centre in Westminster, London. The show will feature a unique line-up of top speakers including Nigel Wray, tech queen Vin Murria, Dave Lenigas, Mark Slater, Tom Winnifrith, Adam Reynolds, Ed, Croft, Nick Leslau Luke Johnson and Dr Johnny Hon as well as 135 exhibiting small cap companies.
The hot share tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the share tips contained here should seek independent advice from a Financial Conduct Authority authorised Stockbroker or Financial Adviser. We cannot be held liable if individuals suffer losses through following share tips contained on this site or emailed out as free share tips. The value of investments can go down as well as up. The past is not necessarily a guide to future performance. Investing in shares can lose you part or all of your capital although the potential returns are theoretically unlimited. The difference between the buy share price and the sell share price for smaller company shares (penny shares) can be significant. Profits from dealing in shares may be liable to tax - the level of tax and bases of relief from tax are subject to change. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Some of the shares recommended on this site will be smaller company shares. By their nature such investments can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares (or 'small caps'/'penny shares'). FiveFreeShareTips.com & its sister site ShareProphets.com defines a smaller company share as any stock traded on AIM or NEX or which has a market capitalisation of less than £300 million.