Grays' Stocks to Watch in March: Interims and Final Results Feature Strongly

It has been a very interesting month, which has seen the tragedy of the Japanese Earthquake, the conflict in Libya and continued unrest in other Middle Eastern nations.  These factors have been the main things driving the markets this month. 

But there has also been a lot of company news released this month, with a brace of interims and finals being released along with other news. 

To start though I will quickly go over why I have added four new entries to Grays Stocks to Watch:

 

• Morrisons (LON:MRW) – Added thanks to the fact that the new CEO has proven via his strategy that he is interested in making money for shareholders, as he has announced a £1bn share buyback plan, as well as announcing plans to increase the dividend by at least £100m over the next two years, giving them a prospective dividend rate of 4.2%.  Taking this into account, with the strength of their balance sheet, their relatively low P/E ratio of 11, and a current dividend rate of 3.6%, making them the lowest rated of the grocers.  Considering the potential they have for online growth (their recent purchase Kiddicare shows that they will be conservative in their attempts, rather than gung ho like many feared when the Ocado purchase rumours began to surface), they deserve a place in the defensive section of Grays Stocks to Watch.
• Stanley Gibbons (LON:SGI) – Added to the value section of Grays Stocks to Watch thanks to their strong balance sheet, and the fact that they are on such a low rating, with a P/E ratio of under 10 when added.  Which, considering the consistency of their profit growth over the last five years, the potential for growth from Asia and their consistent dividend payments (Current yield 3.6%) seems quite low.
• Falkland Oil & Gas (LON:FOGL) and Borders & Southern (LON:BOR) – Added to the ultimate gamble section of Grays Stocks to Watch due to the fact that their share prices have suffered so much over the last few months, that the risk reward from the success of a well from just one of them makes them a worthy gamble (Goldman analysts put the success of two wells at Borders in a share price rise of 1,500%, and success at Loligo for Falklands at 1,700%).

Now to go over the main news as always from the last month for Grays Stocks to Watch:

Main news for March

In my view the best news out over the last month came from Antrim Energy (LON:AEY), via the fact that not only have they secured their placing money, meaning they now have US$75m in cash, but also they have finally secured a drilling rig, meaning things are likely to finally start heating up for them (click here to see there plans).  Though there was one downer for Antrim, and that was the news that George Osbourne in all of his ingenious wisdom has decided that the North Sea tax rate should be increased to an outrageous 62%.  This move, considering that fact that they had been hinting at lowering the already investment adverse tax rate of 50%, seems highly dangerous as not only has it seen investments shelved (Hurting Nautical Petroleum, as Mariner has been shelved), but it damages the UK’s reputation as a safe investment haven, as by talking of lowering tax they drew more investment, so to increase tax after saying this is nothing but a shot in the foot, and will do nothing but hinder future investment, and see lower future tax intake.  Though going back to Antrim, as the oil they are looking for is higher API (West Teal was tested at 37 degrees in the past) if the wells are a success the increased tax rate should not hinder their investment viability, also by the time these wells came into production if they were a success, if the Chancellor has any sense the tax rate will have been lowered substantially (Barring of course the oil price reaching very high levels, making the investment case just as good).

Moving onto Nautical Petroleum (LON:NPE), the Burgman well was a great success, with the sidetrack proving to be the highlight, with Steve Jenkins, Nautical's Chief Executive Officer, commenting:

"This is a fantastic result having encountered thicker, better quality sands at the most optimistic end of the pre-drill range.  This further endorses that seismic data can predict thick, porous, oil bearing sands. Burgman is yet another significant discovery on this prolific block."

Just to note, analysts have put the OIP figure for Burgman at over 100mmbbls, with recovery rates of between 15-25%, which if proves to be the case, would be a great success.  Nautical also released their interims which showed that they had cash of over £110m.  But alas even with all this good news, their share price finished the month down due to the North Sea tax increase, because as said earlier it saw Statoil shelve Mariner, which though Nautical only owned 6%, was still an important holding due to its size.  Also the tax rate brought into question the viability of Kraken (Which this month saw the STOIIP range increased substantially) and some of the other potential prospects of Nautical, and because as of yet, Nautical have not issued any statements on what, if any effect the North Sea tax rate will have on their prospects, it is unsurprising to see share price weakness.

Sticking with the North Sea, Ithaca Energy (LON:IAE) were another to suffer a knock on effect, and considering the already indifferent month they have had from the troubles at Jacky, where they have mechanical issues causing not only a delay in the drilling of the new well there (J03), but also a short halt to production.  It is not surprising to see that their share price has suffered, but as they have issued a statement highlighting that the tax rate will not damage the viability of their prospects, and thanks to tax losses save up, they will not be paying tax for a while anyway (By which point, the same as I said for Antrim, the tax rate may have been lowered again, or the oil price could be a lot higher).  This could actually turn out to be a good thing for them, as it may allow them to use their substantial balance sheet to purchase some assets on the cheap, therefore benefitting shareholders long term.

Other news for the Month

Starting with Stanley Gibbons, their finals showed further solid progress, with profits up 8% and the dividend being increased yet again.  Also their balance sheet is looking exceptionally strong, as they have a large number of stamps in there at historic book cost, when in reality chances are the value of these stamps are far ahead of this historic book cost.  Though of course the risk of lowering their cash position further to invest in stamps does increase the risk of their balance sheet, but considering the history of stamp collecting, and the continued demand and interest in it, the increased risk does not hinder their value investment case.

Kryso Resources also had a good month, issuing some excellent drilling results for Pakrut, with the highlights being ore zone 6 which yield 18.2 g/t au from 4.5m, and confirmation that Eastern Pakrut surface mineralisation continues at depth.  They also announced some board changes, further entwining their connection to CNMIM, but before investors get worried, they did also bring in a completely independent director which should keep investors happy.  One final highlight was that they announced that they will release an updated resource estimate in Q2 2011.

Frontier Mining (LON:FML) who I have not discussed for a while had a very interesting month, though alas not for the good.  To start they issued a note stating that they needed to wait to see if the Kazakhstan national mineral company wished to use their pre-emptive right over Benkala.  This was something that completely caught investors off guard, as there had previously been no warning of their even being a possibility for this to happen.  But thankfully by the end of the month, confirmation came through that they had not taken up their pre-emptive right, with Erlan Sagadiev, CEO of Frontier Mining, commenting:

“We are very happy to have received this key decision from Tauken-Samruk. We now expect rapid and straightforward progress towards receipt of final approval so that we can complete the acquisition and consolidate 100% of the Benkala Project into the Frontier Group.”

Therefore with the much delayed merger now seeming like it may finally go through, considering that ore stockpiling has begun at Benkala, with the battering they have suffered share price wise this month, they are looking good value.  Just to note, it seems that the directors share this view with CFO George Cole purchasing 800,000 shares at 5p during the month.

On the directors buy front, Botswana Diamonds Chairman John Teeling this month purchased 4.5m shares at a price of 4.25p increasing his stake to near 9% and showing his confidence in the African Diamonds spin off.  Also during the month, Botswana announced that they had acquired a new licence in Cameroon, with the licence covering 8,027 square kilometres (though they intend to lower this to 1,000), with them also stating that current information suggests that the Cameroon discovery could be a close analogy to the Paleo-Placer deposit being mined in the Marange area of Zimbabwe.  Their interims were also released this month, with them highlighting that they were fully funded until 2012.  Though in the downside, it was also highlighted that there was still an overhang from the Lucara purchase of African Diamonds, meaning share price weakness is likely to persist for some time yet.

Bpc (LON:BPC) had a good month, announcing a good 2D seismic result and a placing to raise £45.6m at 18.75p a share.  Though the mood today was slightly dampened when the news that drilling would now likely not be until 2012 rather than Q4 2011.  Also, the worries over the Bahamas governments plans over the environment which was sparked by the BP disaster in the Gulf of Mexico is still causing issues, with the Statoil farmin now requiring them to conduct an EIA study before they can move forward with the application process.

Falklands Oil and Gas has had a good month, with the BHP Billiton ownership settlement giving them 100% of Loligo, and seeing their cash balance increase to $110m from the $70m released earlier in the month in their finals.  Also, on the plus side it seems that BHP are not making as fuller exit as believed, as it seems that they are just de-risking, because they have kept an option to re-enter the block with a 40% non-operatorship stake, with them being required to make a cash contribution to FOGL's future exploration and appraisal costs to get this stake.

Tullow Oil (LON:TLW) has released this month that finally the CNOOC and Total farmin in has gone through, putting the issue to bed on ownership and delay issues once and for all.  Also Dragon oil thanks to some further good drilling news has announced that production is at current well over 57,000 bopd, meaning finally after a few years of struggling to hit targets they appear to be surpassing them.  Also Paypoint can finally move on, thanks to the Lottery commission’s decision to reject Camelot’s proposal.

The final two to mention this month are Dairy Crest, who has issued their end year trading statement in which they have stated that they have reduced costs by a further £20m and cut net debt yet again.  And Afren, who has announced that they have acquired a 75% interest in a block in Tanzania for a US$40m investment, which has the potential through three prospects to hold 1.4bn barrels of oil in total.  Afren also released their finals this month which showed a maiden after tax profit of $45.9m as well as cash flow of $209m, further highlighting their rise to a mid-tier producer.

What to look out for in April

In my view the main thing to look out for in April will be the continued fallout from the North Sea tax hike, as there are a number of companies still evaluating the impact of the tax, which means there will likely be more to come yet on the shelved pile.

One other company to continue to look out for this month will again be Serabi Mining (LON:SRB) (Who have just completed their TSX listing, making them ISA available), as the drilling results from Palito should continue to come out this month, and anything good could send the share price rocketing.  Aurelian Oil and Gas is another to keep an eye on this month, as their delayed high risk high reward oil prospect results are due out this quarter, and any success could send their share price rocketing.

Interesting Articles from the month

Ireland continue to resist corporation tax rise despite pressure from EU:

http://www.iii.co.uk/news/?type=reutersnews&articleid=TRE72O0Q0&feed=Bus&action=article

BHP Billiton to invest substantially in Australia:

http://www.iii.co.uk/news/?type=reutersnews&articleid=TRE72N67X&feed=Bus&action=article

Unite Union threaten strike trouble:

http://www.iii.co.uk/news/?type=reutersnews&articleid=TRE72N41J&feed=Bus&action=article

Portugal rating cut as PM leaves:

http://www.iii.co.uk/news/?type=reutersnews&articleid=TRE72N623&feed=Bus&action=article

Buffet backs Japan:

http://www.iii.co.uk/news/?type=reutersnews&articleid=TRE72K0FV&feed=Bus&action=article

Broker Report, includes Ithaca and Tullow amongst others:

http://www.igindex.co.uk/content/files/ukratings_17mar2011_igipm.pdf

Tax tips:

http://www.stockopedia.com/content/tax-investing-remember-your-bed-and-breakfast-loophole-54866/

Japan nuclear disaster winners and losers:

http://www.iii.co.uk/articles/14745/japan-nuclear-disaster-losers-and-winners

US home construction slumps:

http://www.bloomberg.com/news/2011-03-16/housing-starts-in-u-s-fall-more-than-estimated-to-lowest-since-april-2009.html

China hits largest trade deficit in seven years:

http://www.iii.co.uk/news/?type=reutersnews&articleid=TRE7290TX&feed=Bus&action=article

Closing Note

As always if I have missed anything or you have anything to add please feel free to do so via commenting below.