By Simon Hawkins (Head, Oil & Gas Research, Ambrian)
One of the best pieces of advice I was given when I started in the City is “the market is the market”. At first it sounded silly and obvious but having lived with the idea for more than a few years now the message has a timeless truth about it. The idea is that no matter who we think we are, what organisation we think we represent, what insight we think we have on a stock or a sector, whatever opportunity we think we’re highlighting to investors, the market will respond in a way that is sometimes predictable and sometimes not.
It will be influenced by things we know about and sometimes by things we don’t. It has its own ebbs and flows, high tides and low tides, sometimes gets whipped up by a storm that can devastate us. And sometimes, in the calm of the day, it allows us to jump into a small boat, potter out a mile or two on the turn of a gentle tide so we can fish for our lunch.
Over the last three months we have seen the market wipe around £90bn off the value of the UK Oil and Gas sector, leaving it valued at around £250bn. The loss of £90bn is equal to the combined market capitalisation of 119 out of the 122 stocks that make up the sector: everything up to and including BG Group.
Yet, while BP (LON:BP.) has plummeted and pulled down its Big Oil peers, the explorers have been enjoying a renaissance on the back of exploration success in the Falklands, the North Sea and elsewhere. Rockhopper Exploration (LON:RKH), one of the best performers, is now the 18th largest company in the sector without having produced a drop of oil. This is by all accounts an extraordinary time.
So what would be our advice to companies looking to brave the elements to raise cash at this tempestuous time? The good news is that there is still an appetite for a good story but investors are understandably picky.
If you have a good story resulting in strong, transparent cash flows, a robust cash position after the fund raise, reasonable scale and a liquidity in the stock for investors to exit if they need to you will be off to a good start.
IPOs…
