The proposal comes from Barbican Bidco Limited, a company controlled by Balfour Beatty Infrastructure Partners, L.P. and values Alkane at £61.4m, assuming the exercise of all outstanding options. 

Under the terms of the offer, shareholders will receive 36p per share in cash, a premium of 44% to Alkane’s closing share price on the day before the announcement. 

A recommended offer 

Alkane’s management has recommended unanimously that shareholders accept the offer for the company, stating that:

“This Offer enables Alkane shareholders to realise value today in cash for their shares at a significant premium to the recent historical share price, which, in the board’s view, has been impacted by negative sentiment towards the energy industry and continued regulatory scrutiny.”

“We believe that the Offer is a good outcome for all Alkane stakeholders.”

35.3% of Alkane’s shareholders have already accepted the proposed offer. 

However, while the offer does represent a 59.5% premium to the six-month average closing price of Alkane’s shares, it will still leave some shareholders feeling short changed. 

This time last year Alkane’s shares were trading at 40p, approximately 11% below today’s offer. Over the past 12 months, Alkane’s shares have slumped 44%. So investors who bought into the company last year, buying with a long-term outlook have been dealt a raw deal. 

Long-term outlook 

Alkane runs ‘gas to power’ electricity plants and has onshore petroleum exploration licences, which enable the group to extract methane from old coal pits. Also, Alkane has the infrastructure in place to produce electricity at times of high electrical demand or to balance the electricity grid.

For the six months ended 30 June 2015, Alkane produced 106GWh of electricity, a record for the company. Revenue for the period increased by 23% to £8.7m and adjusted pre-tax profit jumped 166% to £1.4m for the half-year. Adjusted earnings per share increased 119% to 0.94p. City analysts were expecting Alkane to report earnings per share of 3.5p for full-year 2015. 

Unfortunately, increased regulatory scrutiny and negativity towards the energy industry has weighed on Alkane’s share price over the past year. And as a result, Balfour Beatty has been able to snap up the company at a relatively low price. 

Based on City earnings estimates, Balfour Beatty’s offer of 36p per share represents a forward P/E of 10.3, which could be considered to be a low-ball offer. Indeed, only 12 months ago Alkane was trading at a forward P/E of 12.2. 24 months ago the company was trading at a forward P/E of 14.3. 

The bottom line

So overall, the buyout offer from Balfour Beatty does provide a quick fix for some of Alkane’s shareholders. That said, there is some evidence to suggest that the 36p per share offer undervalues the company.

The post Alkane Energy Plc Jumps 40% After Buyout Offer From Balfour Beatty plc Unit appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Total power generated during the first half of the year rose by 25% to 106GWh, thanks to the 2014 acquisition of Alkane’s smaller peer, Carron Energy. Revenue climbed 23% to £8.7m, while adjusted pre-tax profit rose by 166% to £1.4m.

Adjusted earnings rose by 119% to 0.94p per share, putting the firm on track to deliver a winter-weighted full-year forecast figure of 3.2p per share. Even after today’s gains, this leaves Alkane shares trading on a modest forecast P/E of 7.5, with a prospective yield of 1.6%.

I think Alkane shares could be worth a closer look.

Hidden value?

Alkane’s business has two parts. It buys up leases to old coal mines and uses coal mine methane gas (CMM) to generate electricity. The firm is adding steadily to its CMM portfolio as opportunities arise.

The second part of Alkane’s business is providing power response capacity for the National Grid. A mixture of mains gas and CMM gas is used to generate electricity at short notice to meet peak demand. Alkane is paid premium rates for this electricity and the firm’s contract with the National Grid currently extends to 2025.

There’s also a third factor, which makes Alkane far more exciting than its core business suggests.

In June 2014, the firm transferred its shale gas interests to Egdon Resources in return for 40m Egdon shares, which are currently worth around £4.8m.

Egdon is the UK’s third-largest shale firm. If the shale industry ever takes off, Egdon shares could skyrocket. Owning Alkane shares could be a much safer way of gaining exposure to Egdon, since Alkane is profitable and has no financial commitments to Egdon or its former shale operations.

Alkane’s sales have risen steadily, from £6.3m in 2009, to £16m in 2014. Profits have kept pace too, rising from £1.4m in 2009 to £3.4m last year. Forecasts suggest that sales could rise to £21.7m in 2015, generating a profit of £5.1m.

I think Alkane could be a profitable buy for small-cap value investors, but I wouldn’t bet the farm on such a small company. A change in market conditions could alter Alkane’s outlook drastically.

One way of balancing this risk and generating a valuable dividend income would be to buy shares in Royal Dutch Shell (LSE: RDSB).

Shares in the UK’s largest listed company are currently trading at the lowest levels seen since the financial crisis. Shell’s prospective dividend yield has risen to 7.3%.

At these levels, a dividend cut is a risk, but as a shareholder I’m not too concerned. Shell’s giant balance sheet carries very little debt. The firm should be able to afford to subsidise the dividend for a couple of lean years without too many problems.

I suspect that Shell’s management will be very reluctant to cut the dividend unless oil market conditions get even worse. I don’t expect this to happen and believe that we could see the oil market bottom out over the next six months.

City analysts seem to agree. Broker forecasts for Shell’s 2015 and 2016 earnings have remained stable over the last month or two, after logging big falls earlier this year.

The post Should I Buy Alkane Energy Plc Along With Royal Dutch Shell Plc? appeared first on The Twelfth Magpie.

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Roland Head owns shares of Royal Dutch Shell. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

But today, regulatory authority Ofgem has launched an enquiry into the information supporting last year’s applications from Alkane and from four other companies, querying whether or not the promises provided at December’s capacity auction were based on false and misleading data. It’s all part of the government’s promised plan to ensure the UK’s power supply systems can cope with demand, but is it working out for customers and for shareholders?

Nothing wrong, honest!

For its part, Alkane has denied that it has done anything wrong in its applications to the auctions, saying it “does not believe it is in breach of the Capacity Market Rules and will fully cooperate with Ofgem’s investigation“, and has said that it will cooperate with the Ofgem probe. But that hasn’t saved the share price, which is down 6% to 23p as I write — and that reverses a recent recovery since April that saw the shares gain 28% to a price of 25.p in mid May, cementing a 12-month drop of 37%.

There’s clearly a fair bit of risk added to Alkane Energy as a result of these tidings, but might that make the shares an even better bargain than they already were?

The rise of 25% in EPS forecast for this year puts the shares on a forward P/E of only around 7.5, dropping to a mere 6.8 based on the latest soothsaying for 2016. Dividends are only just getting off the ground, having proved yields of less than 1% since 2012’s maiden dividend, and there’s  very modest yield of 1.5% expected this year followed by about the same next year. But these days are really too early for evaluating Alkane Energy as an income stock, with its true growth potential still unknown.

Growth?

It’s all about future potential right now, and today’s news is the kind of setback that does often afflict companies at this stage in their growth. Does the latest share price make Alkane Energy look more like a long-term bargain right now? If you want a growth component in your portfolio and aren’t too worried about the risk, you might still do well.

The post Alkane Energy Plc Hit By “Misleading Information” Claims appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

It’s common for small-cap share prices to halve or double within just days or weeks.

Some smaller businesses are better than others

Speculative or risky underlying businesses don’t power all small-cap shares, though. Sometimes we find a solid and well-financed business with a good business model and an attractive trading niche or franchise.

We have three such solid small-cap firms in Tasty (LSE: TAST), Bioventix (LSE: BVXP) and Alkane Energy (LSE: ALK), each of which, in my view, looks attractive now in terms of upside potential for investors.

Rolling out a successful concept

Tasty is rolling out a restaurant expansion programme. Recent full-year results revealed the firm added seven new outlets during 2014 and a further three since the end of the year, bringing the total number of outlets to 39 as of 30 March 2015.

After testing the concept mainly in the South and East of the UK, recent openings are farther afield, such as Nottingham and Bristol. The mainly Wildwood-branded pizza, pasta and good-times restaurants seem to be popular, and the rollout programme is gathering pace at a time when the macro-economy is improving in Britain.

An experienced management team with previous successful rollout experience heads the company, and the firm shows every sign that it executes its business well — a focus on getting the basics right seems to be paying off. The numbers tell the story: for 2014 the company posts revenue up 28%, gross profit up 26% and pre-tax profit up 46% over the previous year’s figures.

Financial progress is steady and solid on most important measures:

In my opinion, Tasty’s expansion remains in its infancy, and the pace of expansion may accelerate from here given the favourable economic backdrop and the proven success of the firm’s restaurant concept.

Drivers from here could be:

• Improving like-for-like sales as the economy continues to strengthen;
• Acceleration of the firm’s rollout programme.

Hard to imitate

Bioventix specialises in the development and commercial supply of high-affinity monoclonal antibodies and occupies a profitable niche market. The company’s in-house development programme produces some of the tools scientists need to tackle the diagnosis or monitoring of a broad range of conditions, including heart disease, cancer, fertility, thyroid function and drug abuse.  New start-ups don’t challenge the firm’s profit margins every day, as the company’s operations demand a high degree of specialist knowledge. A small team works to develop ongoing forward revenue and profit streams, which suggests growth potential. Meanwhile, royalties on previously licensed developments drive impressive financial results: 

 Drivers from here could be:

• Newly developed antibodies increase forward royalty earnings;

• The firm might increase its workforce and accelerate development activities. 

Electricity-generation from gas

In a trading update released today, Alkane Energy reports an encouraging step change in performance, driven by acquisitions during 2014. The firm uses methane trapped in abandoned coalmines to drive engines that turn generators. The company then feeds the electrical energy produced to the grid. When methane runs out, Alkane buys in gas to drive the engines for power-response, where the grid needs temporary energy quickly to cover as larger plants start-up or when demand peaks.

Output in the first three months of 2015 has increased by 26% and the share price is heading up, breaking a period in the doldrums. The fallen oil price seemed to pull down Alkane’s strategic investment in Egdon Resources (LSE: EDR), where Alkane transferred its shale rights. A weaker power selling price environment also weighed on Alkane’s shares. However, operational progress remains steady:

 Drivers from here could be:

•  Further growth from acquisitions;

•  Organic efficiency gains;

•  Firming electricity-selling prices;

• A recovering oil price lifting Alkane’s Egdon Resources investment;

• Egdon Resources adds value to the shale licences on Alkane’s operating areas;

• Better forward uptake of Alkane’s power-response offering.

The post 3 Solid Small-Caps Set To Fly? Tasty Plc, Bioventix PLC And Alkane Energy Plc appeared first on The Twelfth Magpie.

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Kevin Godbold owns shares in Tasty and Alkane Energy. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.