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Valuation, sentiment, and SP direction

Wednesday, Jun 17 2009 by
16

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.

 

Moderation note: posts will only be deleted from this thread by the site admins or by agreement from at least three of sirlurkalot, emptyend, djpreston and doverbeach.  If three of this list agree to delete a post, the names of those three and the reason for deletion will be noted in a post on this thread so everything's completely transparent.


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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)
426.1p
Change
0.0  0.0%
P/E (fwd)
10.7
Yield (fwd)
4.1
Mkt Cap (£m)
1,414



  Is SOCO International fundamentally strong or weak? Find out More »


1291 Posts on this Thread show/hide all

GulfTrader 21st Jul '12 912 of 1291
4

Hi Guys, Im a Fund Manager from the ME. I invest heavily in proven, highly cash generative producers and now SOCO has joined this league, have decided to build a substantial stake in expectation of solid returns in the coming months and year(s)!

Just a quick question, am I correct in saying that the upcoming development drilling is aimed at proving the extension of the field to the East as the reprocessed seismic indicates? And are we expecting around 30-50% resource upside in the TGT field medium-term? From studying the field this is certainly achievable and therefore I’m happy for the ops team to go full steam ahead in 2013 and prove up pure value. In light of this do we still expect a reserves upgrade around September as pointed out by posters post AGM?

I’m with the majority on this board and expect once all formalities are satisfied for an eventual valuation of c3-3.5B$, however long it may take us to get there! Will be interesting to see if it will be months or years!

Good luck all and look forward to reading the excellent insights shared on this board.

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emptyend 21st Jul '12 913 of 1291
10

In reply to GulfTrader, post #912

My 2p on the questions you raise:

Just a quick question, am I correct in saying that the upcoming development drilling is aimed at proving the extension of the field to the East as the reprocessed seismic indicates?

It isn't clear at present. There is certainly possible additions to be had to the east, but I would think the focus would be more on drilling undrilled fault blocks (H5) and any wells that may be desirable re the connectivity thesis.

And are we expecting around 30-50% resource upside in the TGT field medium-term?

I'd say that is an absolute minimum, both in terms of quantum and time. Technically I assume you mean reserves (2P) rather than resources (2C).

From studying the field this is certainly achievable and therefore I’m happy for the ops team to go full steam ahead in 2013 and prove up pure value. In light of this do we still expect a reserves upgrade around September as pointed out by posters post AGM?

Given that they haven't upgraded reserves for 4 years, I think they absolutely will have to say something on the matter in the coming weeks, especially if there is more serious upside in prospect from 2013 drilling. I'd be surprised if the August interims pass without a reserves update.

I’m with the majority on this board and expect once all formalities are satisfied for an eventual valuation of c3-3.5B$

Thats been my range up to now - but IF connectivity can be proven then IMO there could be a further 40-50% additional in prospect. I have no idea at all whether that is likely though, because it depends on the data being obtained currently. This is one reason why I think they will have to make some sort of reserves statement, even if they will have a chunk of 3P that needs further work done.

ee

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loglorry 2nd Aug '12 914 of 1291
1

Back in May I wrote:-

Well I just bought a few Soco at 286p same reason as last time to add to my core holding. I'll probably get slated for making another quick 10% in a matter of days but again I think it is a decent short term strategy with the buy back in place and the very solid asset backing.

Well I've just sold out of that nice trading position keeping my core position for a bit more than a quick 10%.  I'm still a beleiver but I think the EZ problems will drag on and it could take a long time for Soco to go higher if a deal isn't done that is. 

Log

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kenobi 2nd Aug '12 915 of 1291

In reply to loglorry, post #914

yes log, a good little trade there, I would be wary of reducing at the moment because we can be pretty sure there will be a reserves upgrade in the autumn and ee has speculated perhaps even on the 22nd,aug with the interims, but the way the ez issues are at the moment you may well have bought back by then anyway !

hope your timing is good,

K

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loglorry 2nd Aug '12 916 of 1291

Still have a good core holding. I watched Draghi today. He was unconvincing. I think they'll get there but it will yake time.

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davjo 2nd Aug '12 917 of 1291
6

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? :-

http://www.hmrc.gov.uk/cgt/shares/find-cost.htm
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 1291

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 1291
3

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 1291
9

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.

Log

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GulfTrader 11th Aug '12 921 of 1291

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 1291
1

In reply to GulfTrader, post #921

Hmmmm

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Fangorn 13th Aug '12 923 of 1291

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 1291

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 1291
2

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 1291

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 1291

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 1291

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 1291

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 1291
6

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 1291
5

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!)

ee

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