Valuation, sentiment, and SP direction

Wednesday, Jun 17 2009 by

Detailed discussion of Soco's assets should take place on other threads, but this thread is to discuss the latest valuations both by ourselves and analysts, sentiment (ie will the shares go nowhere because there's not much upcoming news) and likely moves in the share price in the next six months.  How should the shares be valued?  How reasonable is it that any drilling without a firm commitment further than several months away is ignored by the market?

I haven't seen many recent analysts' reports on Soco, but I have one from Cazenove with a core NAV of 1370p and no doubt considerable explo NAV on top of that.  I imagine that's approximately concensus, but maybe with crude rising again these concensus NAV figures will start to rise.  Has anyone any other recent broker estimates?

My view, as stated elsewhere, remains that in the absence of much to get the market excited the shares will wander aimlessly for the rest of 2009.  I've previously guessed that if crude were $65 at Christmas 09, then Soco's SP would be somewhere near £13 then, and I'm still very happy with that guess.  What does anyone else think?

Of course unexpected bids and other events may overtake this, but these sort of events may happen to any company, and perhaps Soco (where management seem unlikely to accept bids since they believe there is considerable value not recognised by the market) is one of the less likely companies to be affected by the unexpected.  The key new news for Soco might be (a) a bid (IMO unlikely), (b) some sort of presentation by management of the drilling data they claim to have that demonstrates a significant strike has been made at E, currently ignored by the mkt, or (c) possibly hitting oil off the Congo.


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SOCO International plc is an international oil and gas exploration and production company. The Company has oil and gas interests in Vietnam, which includes Block 9-2 and Block 16-1; Republic of Congo (Brazzaville), which includes Marine XI Block and Marine XIV Block, the Democratic Republic of Congo (Kinshasa), consists of Nganzi block and Block V and Angola, which include Cabinda Onshore North Block. The Company's operations are located in South East Asia and Africa. It holds its interests in the Republic of Congo (Brazzaville), through its 85%-owned subsidiary, SOCO Exploration and Production Congo SA (SOCO EPC). It holds its interests in the Democratic Republic of Congo (Kinshasa) through its 85%-owned subsidiary SOCO Exploration and Production DRC Sprl. The Company’s net entitlement volumes were approximately 15,500 barrels of oil equivalent per day. more »

Share Price (Full)
-2.8  -1.1%
P/E (fwd)
Yield (fwd)
Mkt Cap (£m)

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1316 Posts on this Thread show/hide all

davjo 2nd Aug '12 917 of 1316

In reply to loglorry, post #914

I've just sold out of that nice trading position keeping my core position for a bit more than a quick 10%

I trust you've accounted for HMRC's section 104 holding rules which came into force during 2008? :-
Shares bought at any other time
If the shares were acquired on any other date a different rule applies. All shares acquired before the day the shares were sold, of the same type in the same company, are pooled to create a single asset. This is called a 'Section 104 Holding'.

Example - a Section 104 holding
You buy 4,000 shares in March 2006 for £5,000.
In September 2007 you buy another 6,000 shares of the same class in the same company for £26,000.
This would give you a Section 104 Holding of 10,000 shares with a cost of £31,000.

You need to take care when trading a share whilst retaining a core holding. You might find yourself crystallising past profits earlier than you'd prefer....assuming the core holding was purchased at much lower price. Hopefully, a SV sale will offer some tax efficient return to shareholders like a loan note alternative etc. Thus, one should consider whether a sideline trading strategy is tax efficient or not. It seems to me that the introduction of the section 104 rules were designed to claw back CGT earlier than previous rules allowed, which somewhat stymies investors engaged in trading strategies. Unsurprisingly, that was a Gordon Brown policy!


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jseth123 2nd Aug '12 918 of 1316

When you talk of a trading holding how does it compare in size to your "core" holding and how much of your portfolio does Soco make up? (% terms obviously - just curious as I don't fancy "trading around the edges" myself - I fear I would probably just get my timing all wrong)

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K Atkins 3rd Aug '12 919 of 1316

If you hold in an ISA or SIPP then Section 104 does not apply, profits are tax free.

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loglorry 3rd Aug '12 920 of 1316

Great post Davjo but trading position held in a spread bet so no tax implications. The core position is not though.

My portfolio is divided up between bank prefs/bonds and O&G + (some others) in a scale of about 75%:25%. The former provide good income which I channel into other investments mostly O&G when I see opportunities that look very cheap. I tend to only use spread bets for short/medium term trades e.g. 1-6months or shorter if price targets are met. I also tend to only use spread bets when there is very good asset backing and even then I tend to barely use much margin depositing almost the entire value of the bet as cash.

Of the O&G portfolio it is split between safe and risky. Simply put safe has proven producing assets and good asset backing whereas risky is more more E than P. Obviously Soco is in the safe category here. Others include coastal, sterling res (not as safe until breagh comes on though). If I see some big sell offs for no particular reason e.g. soco 285p then I tend to take up a bit more via a spread bet and then reduce as it comes back more in-line.

I know my O&G exposure is high but it is a good inflation hedge as I think we are going to see some money printing more and more as time goes by to solve the credit problems of sovs and banks.

I don't regard my bank bonds/prefs as that high risk anymore although I do think Bank of Ireland is more risky that the others I hold which are Natwest and Lloyds based. As each year goes by they are throwing off a lot of cash now and although UK banks are still at risk they don't need to outperform for me to get paid they just have to do well enough and my returns will be very large indeed.

On the risky E&P stuff I hold WZR,SQZ,TRAP,Bowleven and a few others.

I also hold some Trinity mirror, Home retail and Quentin estates.

So far it is a strategy that has worked well for me. Horses for courses and obviously those that bought and held Soco from double digit values have done extremely well but I beleive there is some survivorship bias built into this I'm afraid and it is not easily repeatable.

If/When Soco is bought out I'll probably look for something similar.

Again I think it is right for people to find a strategy which works for them. I've made plenty of mistakes along the way but on the whole I'm doing very well and happy with the way things are setup.

Risk return Soco has very few rivals but that doesn't mean it fits everyone's investment philosophy.


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GulfTrader 11th Aug '12 921 of 1316

Nice little run up over the last couple of weeks. Looking to add another tranche of shares into the fund @ around 320p if the opportunity arises before the interims are out. Markets seem to have stabilised but being in the business for over a decade it would not surprise me if the stock was walked down before the interims to the 305-315p level for the hedgies to position themselves. Should be all very interesting. All imho.

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emptyend 13th Aug '12 922 of 1316

In reply to GulfTrader, post #921


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Fangorn 13th Aug '12 923 of 1316

I'd be quite happy if it was walked down to 305 or so as I'd be picking some more up to add to my nice pile

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peterdm 13th Aug '12 924 of 1316

I've been thinking of adding at current levels, the strong move up signalling some confidence. A drop back to 305 would see some serious take up. Must be getting close to level at which soco and a prospective buyer can agree a price on a reasonable premium.

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emptyend 1st Nov '12 925 of 1316

IMS out.

One or two minor items, such as a new interest off Congo and the fact that production at TGT has exceeded 60,000 at peak. Cash numbers lower than one might have expected (though can't tell why from the info provided - possibly drilling costs on development wells).

The elephant in the room remains the upcoming reserves report - and there are no clues there.....

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shanklin100 1st Nov '12 926 of 1316

It would certainly be interesting to see a cash flow breakdown for the last few months.

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loglorry 1st Nov '12 927 of 1316

Nothing much new and nothing to get excited about unfortunately. I'm puzzled why cash flow wasn't stronger. Hey ho bit dissapointing.

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nigelpm 1st Nov '12 928 of 1316

In reply to shanklin100, post #926

Agreed. Seems a little lower than I was expecting.

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nigelpm 1st Nov '12 929 of 1316

Anyway, production well on track as expected and cash flows can be lumpy quarter on quarter so generally positive.

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emptyend 1st Nov '12 930 of 1316

In reply to nigelpm, post #929

cash flows can be lumpy quarter on quarter

RBC note that cash is "flat quarter on quarter despite acquisitions totalling $104mn" (though in fact it was $178mn at the half-year).

As you say, they can be fairly lumpy - and you can't tell from the outside exactly when cash calls are being requested and paid for things like the development drilling on TGT which has just finished (and which I omitted to allow for anyway in my earlier comments re cash).

FWIW the RBC headline is:

IMS Confirms Steady Production Growth And An Eye For A Deal

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emptyend 1st Nov '12 931 of 1316

In reply to emptyend, post #930

Just revisiting the RNS, I note that WI production was 18,824 BOEPD week ended 26 October

......quite respectable, considering H1 production was 14,375 boepd.

And, at TGT: production for the last 24 hour period reported (30 October) was 58,867 BOPD (gross) ....and ....16,317 BOPD (net) for the week ending 26 October 2012.  If nothing else this indicates that they are doing a fair amount of playing around taking wells on and off production (the net number for w/e 26/10 is around 53,500 bopd gross).

This is also an important comment:

60,789 BOPD with no issues seen in either the reservoir performance or the FPSO operability

...which suggests that they wouldn't necessarily hold back from putting well combinations onstream that produced at even higher rates.

They also flag a well on the H5 fault block "early next year".....which I assume would imply a spud after the weather clears. Not clear from the RNS whether this is a certainty at this point.

I'm also interested to see Fox Davies' comments:

Balance Sheet Strong but Exploration is missing link - Production for 3Q was up 400% y/y to 13.7m boepd driven by production commencement from the second platform on Te Giac Trang field and we are confident of company meeting its full year production target of 16m boepd. On the exploration side, outlook appears muted, we don't see major exploration activities on any block in the near term. The Company needs to expedite exploration activities and acquire few assets to secure medium term growth. With positive operating cash flow and Net cash of $170.0mm, Soco has comfortable liquidity position.

....I don't think they have a clue about the outlook or the company's agenda!!  ;-)

I've yet to see any analyst speculate on the upcoming reserves assessment (or even pay much attention to it!)


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adam 1st Nov '12 932 of 1316

With positive operating cash flow and Net cash of $170.0mm


must be netting $300m+ p.a. at current production levels.

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Asagi 1st Nov '12 933 of 1316

I've yet to see any analyst speculate on the upcoming reserves assessment 

I think that is significant, given management has been so open about the assessment taking place.

It would be a brave analyst that stepped out from the rest and put a figure in print - especially if that meant suggesting anymore than, say, +15%.

What they tell clients in conversations is another matter. Especially as we are so often told that the research reports are just a fraction of the service that the analysts provide.

Asagi (long £SIA)

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kenobi 1st Nov '12 934 of 1316

>> I think that is significant, given management has been so open about the assessment taking place.

well yes and no, they raised it at the AGM, and have answered questions about it since. BUT if they were being so open about it, would you not have expected a mention of it in todays IMS ???
if they wanted analysts to talk about it, I wonder if there was some way they could have reminded them that this was going on, and we're not sure when it'll be finished but maybe by year end say ??? hum, how could they have bought it to their attentions ? if only there was some kind of document they periodically release, where it could be snuck in just to get people thinking on those lines ......
ok, sorry about the sarcasm, you know what I'm saying, they obviously don't care if the analysts are talking up the stock or not, or they would have put this on the radar ? unless they think they're a possibility the outcome will disappoint so they prefer to under promise and over deliver ?

anyway, joke/sarcasm aside, I think they could have mentioned the review and expected date as part of the ims, especially as it's probably the most significant issue at the moment,

still, what do I know ? (answers on a postcard as they used to say)


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Asagi 1st Nov '12 935 of 1316

Fair post kenobi.

Asagi (long £SIA)

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redhill 1st Nov '12 936 of 1316

well yes and no, they raised it at the AGM, and have answered questions about it since. BUT if they were being so open about it, would you not have expected a mention of it in todays IMS ???

FWIW, I still don't think we will hear anything on the reserves update this side of the year end despite the teasing hints from the company at different times over the last few months of something sooner.

My guess is a reserves update will be mentioned as part of the Operational Update within the Preliminary 2012 results (for 2011 these were announced on 15 March 2012).

But who knows.........?


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