LON:AO. | I Read The News Today Oh Boy! 11-May-2018 - Something Different!

11th May '18 by matylda

18 comments 6017 reads

With no news for stocks in my universe this morning, just thought I would throw this out for comment - A little something different for the weekend.

Note: This is something I intend to trade on a small Spread Bet account going forward, to keep a "real world" eye on progress (hopefully, starting next week (still a couple of decisions and final points to confirm, perhaps you can help, see below)).

This is the start of my venture into £500m - £1bn Mkt Cap (liquid enough to Spread Bet, small enough to potentially double) shares using a Technical screen as my starting point. Usually, I don't invest in a share with a Mkt Cap greater than £500m.

Screen

Basics are Price is above the 50 SMA, which is above the 130 SMA, which is above the 200 SMA. The 52 week high is at least 50% higher than the 52 week low and current price is within 25% of the 52 week high. One temporary rule: Price is below 500p (to allow me to place “play” Spread Bets for now).

Here's the screen if you're interested.

Current offerings and thoughts.

AO World (LON:AO.) – Revenue is going up (but nothing dramatic) but it's never made a profit and not even forecast to do so until at least 2019 - Pass on this for now.

CMC Markets (LON:CMCX) – Most recent actuals (Revenue, PBT and EPS) are down and the nearest forecasts are not exactly inspiring - On the plus side Op Mgn and ROCE are very good and stable plus there's a decent yield - They may be enough to drive the price higher but would prefer to see better Revenue, PBT and EPS, both actual and forecast - Pass on this for now.

Faroe Petroleum (LON:FPM) – Not yet making a profit but a big improvement in the most recent actuals and forecast to grow well in 2018 and 2019 (although it's strange that 2018 EPS is so low) - KICKER - With Net Cash looks like a profitable Oil & Gas company that will require no more funding - Entry at the most recent high - 145p?

Hurricane Energy (LON:HUR) – Most recent actuals…

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MrContrarian

11th May '18

My morning smallcap tweet: Carpetshite fitted up.

Crawshaw (LON:CRAW), Carpetright (LON:CPR), Interserve (LON:IRV)

Crawshaw Group (CRAW) new CEO & CFO. CEO was Head of the Fresh Meat Department at ASDA but there is a slight wiff about him: "His departure from ASDA was referenced in an article by The Grocer citing his dismissal for gross misconduct in connection with breaches of Walmart's expenses policies." Kudos to CRAW's Nomad for putting that in.
Carpetshite (CPR) gets loan-shark type crisis loan from shareholder of £17.25m which includes a £2.25m arrangement fee. Also 18% int rate. Still plans £60m fundraise in a week or so.
Interserve (IRV) has received a formal notice that it has been referred to FCA for investigation of handling of inside information and its market disclosures re its exited energy from waste business, from 15 July 2016 to 20 February 2017.

grb

Interesting stuff. Oil & Gas companies - and mining companies are no different - have fundamentally fairly simple models, with the complicating factor of the price of whatever the resource is. Oil prices have increased over the last few months, and that's probably why you have so many in the screen right now. Stable, large producers make reasonably safe but unexciting investments for a balanced portfolio. There's the prospect of better investment returns (at any scale of company) where there's forecast to be significant growth in production, and the further one gets down to the small explorers and prospectors, the more you're venturing into BB-frenzy-land, and the risk/reward factors get more extreme. For all of them, financing and debt management are fairly crucial. Hurricane Energy (LON:HUR) is an interesting one that I've held for a few years - a pre-producer with financing now in place to progress, and first production not that far away. The further they get on, the lower the risk of things not working out as predicted, and the price adjusts (at least in theory). That fits what you have modelled in your criteria - increasing price momentum. And given that any momentum play will eventually turn, selling rules are critical.

matylda

Thanks a lot for that - All input on the sector is greatly appreciated.

Yes - my #1 wish for Stockopedia is to have a daily report like the SCVR, but focusing on the resource sector, from somebody with the experience and nous of Paul & Graham.

andrea34

I don't think you should filter out simple fundamentals, as surely that's a philosophy you abide by now, why dump it?

I'll try take a look at the two short-listed ones later... but alas I cannot see the list in the link as I am not a paid subscriber - I don't suppose you could please paste in a screen-print?

dmjram

Crawshaw never learn it seems. After the disaster of Noel Collett they appoint another another CEO with zero experience of running a small operation.

As usual, Friday is a quiet day for news, sometimes I wonder if companies slip announcements out on Fridays only if they are hoping investors won't pay so much attention to them.

I feel I am somewhat risk-averse compared to a lot on Stockopedia. For example, I don't spread-bet (too afraid of losing far more than I've invested) and I have quite a diversified portfolio, stacked more in favour of OEICs rather than individual shares. So for a change I'll mention a 'company' that look to have made a positive results announcement today which I have made an initial investment in. I don't suppose it will get anyone's pulse racing, but it does provide more balance (for me anyway):

3IN (3i ~Infrastructure) results out today indicate a good 28.6% return on NAV following two major disposals, prospective yield at the current price 3.8%, premium to NAV only 7.5%, and with cash on the balance sheet for further investment(s). Their portfolio seems well diversified, including Alkane Energy, Attero (high-efficiency waste disposal facilities), and WIG, a communications infrastructure business that is the first in the UK to launch a small 5G-ready network

Bushranger

grb -Yes - my #1 wish for Stockopedia is to have a daily report like the SCVR, but focusing on the resource sector, from somebody with the experience and nous of Paul & Graham."

I would love to see this too. Perhaps one of the Stockopedia team could comment? looking back through old posts it seems Malcolm Graham Wood use to blog on/ for Stockopedia but has now moved to his own blog/ site.

grb (post #2) "...the further one gets down to the small explorers and prospectors, the more you're venturing into BB-frenzy-land, and the risk/reward factors get more extreme"

Perhaps you answered the question as to why Stockopedia do not have an oil sector commentator in your first post? I see Stockopedia as a well respected, well moderated, professional site. I think the oil and gas sector (and mining) unfortunately attracts the worst and most unprofessional group of investors, the " BB-frenzy-land" as you describe them. That's not to say there are not honest commentators out there. A few I have come across charge a monthly fee for their advice though.

Dickshorty

Interesting and thought-provoking, as always. I follow the oil price quite closely for work-related reasons. It is very difficult to predict, but at these prices US shale producers are making money and production is expected to ramp up, putting an effective ceiling on any further significant price rises (but who really knows?).
Don’t know if you are familiar with Tradestops, but they provide a technical traffic light signal (red, yellow, green) around which I have built a small portfolio (admittedly larger cap than you are looking at here) which is performing very nicely. Even here though, I exercise discretion in choosing which stocks to buy, so I think an element of fundamental overlay is important.

gus 1065

Morning Matylda.

Thanks for initiating the post. For my sins, I currently hold 19 O&G stocks and have been following the sector for several years. No particular industry affiliation or knowledge for my part but I find the sector interesting, both in terms of its place as a key part of the wider economy and as an exercise in observed investor psychology (including my own).

As commented on above, the oil majors such as Royal Dutch Shell (LON:RDSB) and BP (LON:BP.) have done well over the past few years riding on the coat tails of crude prices going from sub $30 to $75+ per barrel while operating costs have come down rapidly and are generous dividend payers (one of my larger sector positions is derived from the cumulative Royal Dutch Shell (LON:RDSB) DRIP scheme into Royal Dutch Shell (LON:RDSA) shares!). Interestingly, these are two of the few sector stocks ranked as “Super Stocks”. Most of the rest are at best Neutral and more usually “red”. Of my 19 O&G holdings, 9 are “Sucker Stocks”.

As you move down the food chain to the progressively smaller explorers, you quickly get into the realms of hope over experience. Many operate hand to mouth, raising equity to fund a hole in the ground somewhere - usually exotic, occasionally war torn and invariably in countries with less than scrupulous corporate governance and local political corruption (..... but that’s enough said about Aberdeen). Occasionally they find oil or gas (or at least think they do) and then the games begin raising further finance to exploit the resource either through raising more equity/debt or finding the holy grail of a farm out with one of the oil majors that take on the development and operating risk giving the explorer a free-ish carry. From there, there’s then the process of getting the operation set up and getting the gas or oil to flow and out to market. Every step is fraught with the risk of failure, delays, accidents and local political interference and the whole process is shadowed closely on the BB’s with the rampers and de-rampers trading insults (and occasionally a gem of insight) about the ebb and flow of a particular company’s chances. Add to the mix some less than scrupulous management teams (the sector is known for serial personalities raising funds, taking a nicely upholstered management position and then moving on to the next gig when that particular group of Sucker shareholders dries up) and you have a perfect storm for PI’s to haemorrhage investment capital.

Let’s face it, the sector comes with a major health warning. The occasional long shot comes in and yields a multi-bagger return, but far more often the journey ends in disappointment. Either the oil isn’t there, it can’t be produced profitably or else the funding process dilutes the original investors return substantially. (Or if you’re Serica Energy (LON:SQZ) shareholders, Mr Trump unilaterally re-ostracises Iran).

Of the specific stocks you mention, I hold Hurricane Energy (LON:HUR) (potentially sitting on a huge N Sea find but some hair on the intended path to bring it to production) and Premier Oil (LON:PMO) (big producer already and various decent prospects but had a near death experience massively over expanding when oil was $100+ and only now getting the debt mountain under some sort of control). I also held Faroe Petroleum (LON:FPM) but sold too early prior to the recent announcement that a major Norwegian entity has taken a big stake and may be in the process of taking it out completely. Of other holdings that seem to be on the up-swing, EnQuest (LON:ENQ) is a similar play to Premier Oil (LON:PMO) and SDX Energy Inc (LON:SDX) is on a roll at the moment after a series of decent finds in North Africa. My current “hair shirt” is Pantheon Resources (LON:PANR) - so much potential (in theory) but seems to have fallen foul of some dreadful ancient curse with a whole litany of operational problems over the past couple of years. One day, .... maybe (sighs).

All told, I’ve made decent money on the sector but, perversely, a lot less than if I’d simply bought oil futures in Jan 2016 and sold them this week. One observation I would make is that this is often a sector where it is far better to travel than to arrive. Over the years, I’ve held/still hold stocks that have rocketed in value on the promise of jam tomorrow (usually in the form of a “ma-hoooosive” find that will raise the share price over 1000%), only to then trip over and fall back down to earth with a bump. With hindsight, and contrary to a lot of conventional regular stock market wisdom about “running winners”, I would have made far better returns by taking the occasional “50% overnight rise” bird in the hand rather than waiting for the other 15 that might be hiding in the bushes. Maybe short term spread betting is the way to go.

Good luck - do let us know how you get on.

Gus.

(p.s. I’m also a bit of a sucker for mining/resource stocks. Same observations apply, just the names are different).

@ gus 1065, Great overview gus. This is the kind of analysis Stockopedia is missing in this sector. Honest, not ramping, prepared to state the risks. I hold a few oils stocks myself. SDX Energy Inc (LON:SDX). & Trinity Exploration and Production (LON:TRIN). are producers, SDX doing well with discoveries and are able to bring the finds to market quickly. TRIN a turnaround company in Trinadad &Tobago, following surviving the oil price collapse. My two risky, cross your fingers shares are Hurricane Energy (LON:HUR). though increasingly derisked over the last year and Petro Matad (LON:MATD).

Nick Ray

The reason for so many O&G stocks in your screen is that the screen is selecting for high volatility stocks.

I added the 1y Volatility % column to the screen output to look and no stock in the list has a volatility below 42%. The highest is a vertiginous 106%. Only one stock has a % Price Chg 1y greater than the volatility ( Faroe Petroleum (LON:FPM) just pips in). So they are all swinging wildly about.

Now volatility is the natural enemy of margin. This is a personal opinion, but I think this is quite a dangerous screen for margin trading. I know that others may disagree though so it's just my two-penny-worth.

Faroe Petroleum (LON:FPM) looks interesting, they are obviously making progress and recent discoveries look very good. I'm a bit perplexed that they forecast 2018 production guidance at only 12-15,000boepd when the new Tamber wells showed a flow of 18,507boepd; perhaps they are only entitled to a share of it...? The net cash position is encouraging.

To me, SDX Energy Inc (LON:SDX) mentioned in comments looks good too, they are actually profitable and overall production is set to increase this year, albeit not significantly. Their finances seem to look okay too.

Alas, both Faroe Petroleum (LON:FPM) and SDX Energy Inc (LON:SDX) have risen strongly over the past 5-6 weeks. I wouldn't touch any oil companies significantly laden with debt, such as Premier Oil (LON:PMO) or EnQuest (LON:ENQ). I think I prefer the geographical stability of Faroe's operations compared to SDX, and the Norwegian tax incentives seem favourable.

ISAallowance

Hi Matylda,

Since your screen has only thrown up 6 candidates, I would suggest that you could relax some of the rules and still not overload yourself with candidates. I would be inclined to expand the market cap range - 500m - 1bn seems pretty arbitrary and quite a small range - why not 300m - 4bn (4bn is approx the ftse100 cut-off)? You can always manually reject smaller caps with excessive spread, and larger caps that you don't think have a large enough growth runway. In the future if you get overwhelmed with candidates then simply contract the range again. Just a suggestion, gook luck with your trading!

As I posted on the Minervini thread yesterday, I have also been trying some margin trading alongside my regular investing over the last 18 months. Return on equity on the margin account has been better than my investments (which returned 28% and 27% in the last 2 tax years respectively), but return on capital employed in the margin account has been significantly lower, around 10-15%, probably due to over-trading eating profits with fees. I.e. if I'd simply leveraged up my regular buy-and-hold strategy which uses reviews on price falls instead of stop-losses I would have done better. However, we haven't had a proper market crash during that period, which may change the relative merits.

Thanks All - Great comment, special thanks to Gus for the time and effort to construct that detail.

andrea34l - All stocks are listed in the original post, nothing missing.

Could consider expanding greater than £1bn but for now happy to keep the universe smallish to see how this pans out.

Anyone else with comment it is most welcome.

jonno

Hi Matylda

Not sure if it fits your investment criteria, but Ricky65 has suggested that STV (LON:STVG) might be a bid candidate for ITV (LON:ITV) (see 'Hunting for Takeover Candidates'). On the face of it this appears a reasonable shout, although as yet I haven't done any homework on the proposition.

For what it is worth I have a sizeable holding in ITV, held frustratingly for sometime, although it at last appears to be coming good. Like you I very rarely invest outside of the smallcap arena but felt that the slump in the share price over the last year or so made ITV very good value.

Good luck with your selection.

Jonno

Zoiberg

12th May '18

The Crystal Amber Fund is a 7% activist shareholder in Hurricane Energy (LON:HUR) . Under 'major holdings' there is a very clear summary of Hurricane's proposition and history.

ricky65

Hi jonno,

I hope nobody is buying STV (LON:STVG) on just what I posted! It was just my observation that STV was the last independent member of the ITV network. ITV acquired UTV, the franchise for Northern Ireland, in 2015, and Channel Television, the Channel Islands franchise, in 2011.

regards

Ricky

I Read The News Today Oh Boy! 11-May-2018 - Something Different!

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Matylda

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