However, despite its improving fundamentals, the share price has languished. But I think it’s only a matter of time before the market realises this mistake and Amerisur shares wake up.

Pushing ahead

Since 2014 Amerisur, like all its peers in the sector, has been hobbled by low oil prices. But this hasn’t deterred management. The company has continued to push ahead with its plans for growth. It’s made select acquisitions where it believes there’s value to be found, and opened a key oil transport pipeline, which has significantly increased the average profit margin on each barrel of oil produced and sold by the enterprise.

City analysts believe Amerisur will report earnings per share (EPS) of $0.023 for 2018. That might not sound like much, but it indicates year-on-year earnings growth of 110%, and puts the stock on a forward P/E of just 8.5.

In my opinion, this low valuation seems to suggest that the market has given up on the business and leaves no room for positive surprises. In fact, after adjusting for the £29m (2.4p per share) of net cash on Amerisur’s balance sheet, the cash-adjusted P/E falls to just 8. This bargain basement valuation appears to give a wide margin of safety for investors, and any slight improvement in Amerisur’s fortunes could result in a substantial increase in the share price.

Double in value 

Another oil stock I think is set to outperform in 2019 is Gulf Keystone Petroleum (LSE: GKP).

It’s an understatement to say that this company has a mixed history. The business was forced to conduct a major restructuring in 2015 as, drowning in debt, falling oil prices crippled the business. However, after the reorganisation, Gulf Keystone is now better positioned for growth than it has ever been. The balance sheet is flush with cash ($121m at the last count), and a focus on streamlining operations has helped improve profit margins. 

City analysts believe the company is set to report EPS growth of 341% for 2018, indicating EPS of $0.27, and a P/E of 8.6. Further growth is expected in 2019. Analysts believe EPS could hit $0.40 by the end of the year, up 46% and giving a forward P/E of 5.9. Once again, I think this multiple is too conservative. 

Considering that the rest of the oil sector is trading at a median forward P/E of 11, Gulf Keystone looks to be undervalued by around 50% compared to peers. If the company can hit City forecasts for 2019, and successfully put its mistakes behind it, I see no reason why the shares cannot double from current levels.

If Gulf Keystone outperforms expectations, then the shares could rise even further. With such a large margin of safety on offer, I think investors will most likely see a positive performance from this stock in 2019.

The post Why I’m betting on these two growth stocks for 2019 appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Unfortunately, as Alan went on to cover in his article, since the beginning of 2018 Amerisur has issued a series of depressing trading updates.

However, while I’m no longer convinced that this is one of the market’s most undervalued stocks, I still believe Amerisur has a bright future.

Looking ahead

So, what’s to like about this business? Well, after a slow summer, the company has now resumed its exploration efforts, a development CEO John Wardle said he is “delighted” to announce.

Amerisur was one of the few oil companies in the world to enter the oil bear market in 2014 with a cash-rich balance sheet. It didn’t waste any time deploying its capital, snapping up assets from other explorers and producers that needed to raise cash. 

Over the next few months, the company is going to spend a considerable amount of time on completing seismic and exploration drilling activity on this new acreage.

At the same time, after a “frustrating” cycle of well work on Amerisur’s existing producing wells over the first two quarters of 2018, work is now complete, and production has stabilised. Average daily production was 4,927 barrels of oil per day (bopd) in August, producing a steady stream of cash flow for the firm to reinvest in the development of newly-acquired assets.

And on top of Amerisur’s positive production and exploration news, the company also informed the market today that it has completed the construction and installation works at the Chiritza re-pumping station, on budget, and six weeks ahead of schedule. When commisioned, the re-pumping station will boost the company’s minimum throughput capacity in the fundamentally important OBA pipeline to 9,000 bopd. This is a critical part of the group’s plan to increase production over the next few years.

As Amerisur’s production grows, I believe the stock could recover all of its losses of the past five years, returning to 50p or more. Indeed, I believe the outlook for the company is brighter than it is for peer Sound Energy (LSE: SOU).

Uncertain future

Oil and gas exploration is a risky business. More often than not, that world-beating hydrocarbon find turns out to be nothing more than hot air. That’s why I’m sceptical on the outlook for Sound Energy.

This year, the company is carrying out a drilling programme at its acreage in Morocco, which Sound believes could yield more than 8rtn cubic feet (tcf) of gas. The firm has the right to drill on this acreage for the next eight years, but management is hoping to make a significant discovery before the end of the licensing period (hopefully before the end of 2018) and sell up to a larger peer with deeper pockets.

There’s already a lot of good news factored into the Sound Energy share price, which makes me wary of the stock. If Sound’s exploration plans struggle, the shares could slump as investors rush for the exits. 

If this is the case, I would buy Amerisur over Sound as we know Amerisur already has real production potential.

The post Could this tiny growth stock potentially smash the Sound Energy share price in 2019? appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

But while some have been staging a comeback, Amerisur shares have remained stubbornly flat over the past year — pretty much in line with the FTSE 100, but a lot more volatile.

Back in April, my colleague Rupert Hargreaves suggested that Amerisur was “one of the market’s most undervalued small-cap oil stocks,” and I can see why he thought that. Results for 2017 looked impressive to me too. But what looked like it might have been a share price recovery soon afterwards quickly fizzled out as June’s operational and production update failed to enthuse the markets.

Frustrations

Chief executive John Wardle did say that “the continuing cycle of well work is frustrating,” speaking of maintenance work required at the firm’s Platanillo field. But investors who don’t expect such things, which are pretty much inevitable during the lifecycle of an oil field, should probably be putting their money elsewhere.

The most recent operational update in early August looked solid, with Mr Wardle sounding upbeat about the company’s operations getting back on track — and, unlike some, he’s not one who seems to be afflicted with undue bullishness.

And on Friday, we heard of the spudding of the Pintadillo-1 well, which is the first of three exploration wells set to investigate the same target.

One thing that separates Amerisur is that it’s not a cash-burn explorer, and there are decent profits on the cards for this year. A definite possibility in my book.

Recovery

Tullow Oil (LSE: TLW) was also hit hard by the oil price crash, made worse by the company’s very large debt mountain. But the recovery looks to have started, with the shares up 50% over the past 12 months while Amerisur’s were flat.

Over five years, however, the picture is different, with Tullow’s share price fall of 74% looking distinctly worse than Amerisur’s.

An update from Eco (Atlantic) Oil & Gas on Friday is also good news for Tullow, strengthening the prospects for the two companies’ jointly-owned Orinduik licence in Guyana. But generally, Tullow’s asset portfolio looks very solid — in fact, that’s never been the problem.

Debt

The problem has been debt. But it’s coming down — at the interim stage at 30 June, Tullow had reduced its net debt to $3.1bn. That might sound like a lot, but it’s down from $3.5m at December 2017 — and it had been as high as $4.8bn a year prior to that.

The recovering oil price combined with successful refinancing played a big part in that, but production figures look like they’re going to keep climbing too. At June’s first-half point, chief executive Paul McDade spoke of plans to increase production at the company’s assets in West Africa, with onshore developments in East Africa set to see progress too.

The big question is whether Tullow is a good investment right now. To me it’s somewhere between the giants like BP and Royal Dutch Shell, which I rate as perpetually great, and the mass of smaller blue-sky explorers, which I think are generally too risky. But yes, I’m optimistic on Tullow.

The post Can this stock outshine the Tullow Oil share price this year? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Indeed, for 2017 the company reported revenue growth of 96% to $89.5m, up nearly 100% year-on-year thanks to higher oil prices and increased production. Adjusted earnings before interest tax depreciation and amortisation increased around 4,850% from $0.4m to $19.8m and net cash generated from operations increased tenfold to $30m.

At the end of the period, the firm reported $41.3m in cash and no debt, giving management plenty of financial headroom to pursue Amerisur’s planned development programme in 2018. The company is targeting 14 fully-funded exploration and development wells during 2018, as it looks to boost its oil reserves. Three wells targeted for development in the near term could yield as much as 25m barrels of oil, although, at this point, 25m is just a rough estimate.

Black gold 

Amerisur badly needs this additional resource. At the beginning of April, shares in the company slumped after it revealed reserves at its flagship Platanillo field had declined to just 12.8m barrels, down from 15.1m barrels in 2016, after production of 1.8m barrels of oil during the period. These numbers imply that the remaining life of the prospect is just seven years.

Still, the company is well funded to develop other wells, and that’s exactly what it plans to do in 2018. Not only should the shares benefit from additional exploration activity, but Amerisur will also undoubtedly benefit from higher oil prices and lower operating costs. 

The commissioning of the Oleoducto Binacional Amerisur pipeline, which allows the group to transport its oil through a pipe, rather than individually trucking each load, helped push down operating costs to $18.6/bbl in 2017, from $24.9/bbl in 2016. With oil at $60 and operating costs below $20/bbl, the firm is now booking a cash netback over $40/bbl, and as long as oil prices remain where they are today, this should continue throughout 2018. 

City analysts seem to agree. Consensus suggests earnings per share of 1.5p for 2018, giving a forward P/E of just 10 today.

Debt reduction 

As well as Amerisur, I’m also positive on the outlook for small-cap Trinity Exploration (LSE: TRIN). Trinity is another cash-rich producer which has value on its balance sheet, as well as in the ground. 

At the end of March 2018, Trinity’s cash balance had increased to $12.2m, up from $11.8m at year-end. Meanwhile, the group continued to reduce its outstanding liabilities under its agreement with the Board of Inland Revenue and Ministry of Energy and Energy Industries by $1.7m during the period to $4.2m.

These figures indicate to me that Trinity is on track to becoming a substantial cash cow. With liabilities falling, and the cash balance rising, the company is set to be debt-free by the end of the year. This cash flow should allow the group to scale up exploration drilling; something management is already working on. 

Commenting on today’s results, CEO Bruce Dingwall announced “the company has scaled up operations with the recommencement of drilling” providing “further scope for the company to build on the upward production trajectory.“

Overall, as the year progresses with further drilling activity and cash generation, I believe shares in Trinity could have much further to go.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Amerisur Resources. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

After undergoing a momentous restructuring at the end of 2016, the company’s management spent much of 2017 trying to stabilise the business. A low oil price has hampered efforts to rebuild, but now that the price has recovered to levels not seen since the end of 2014, Gulf Keystone’s outlook has improved considerably. 

Putting the past behind it 

Today, the company announced that in 2017 production hit 35,298 barrels of oil per day, which was in the middle of last year’s guidance of 32,000 to 38,000 bopd. However, for 2018, management is expecting production to come in at a slightly lower rate of between 27,000 to 32,000 as it continues to work on a delayed investment plan for the year.

The company is looking to “significantly increase investment in Kurdistan to step up gross production to 55,000 bopd in the near to medium term, a material step towards development of the full potential of the field and production around ca.100,000 bopd,” according to CEO Jón Ferrier. 

There’s plenty of headroom available on the balance sheet to pursue this production plan. At the end of June, the firm had net debt of $2m with cash reserves of more than $100m. Since this date, Gulf Keystone has continued to receive payments from the authorities for oil exports and its net cash position has improved to $47.2m. 

Gulf Keystone has a plan in place to grow and has the cash to pursue development. However, the firm will only be able to succeed if the political situation in Iraq stabilises. Unfortunately, it does not look as if this is going to happen anytime soon. So, while the company’s outlook has improved dramatically over the past 12 months, I’m hesitant to say that it’s in the clear just yet. 

Production stability 

A better oil price recovery play for your portfolio might be Amerisur Resources (LSE: AMER). Focused on South America, specifically the relatively politically stable regions of Ecuador and Colombia, Amerisur has a much brighter outlook than Gulf Keystone. 

For the past few years, the company has been consolidating its position in the regions it operates, buying new prospects and investing in operations to improve efficiency. 

These efforts are starting to pay off. It exited the year with production of 7,000 bopd, compared to the average daily production for the year of 4,862 bopd. Based on this higher output, coupled with higher oil prices and fatter margins thanks to the commissioning of a new pipeline, City analysts expect Amerisur’s net profit to hit £3.1m for 2017, rising 11-fold to £38m for 2018. Based on these forecasts, the shares are trading at a forward P/E of just under 10. There’s also $20m of net cash on the balance sheet. 

Overall, if you’re looking for a small-cap oil producer to add to your portfolio, I’d choose Amerisur over Gulf Keystone, thanks to its rapidly growing production and profitability.  

The post Is Gulf Keystone Petroleum Limited a top small-cap recovery play for 2018? appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Amerisur Resources. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The reason for that is clear too, as the oil and gas explorer’s previously high-flying profits nearly halved that year, and then crashed to losses in 2015 and 2016.

But while there is certainly some justification for the sell-off, I think it’s overdone now that there’s a recovery on the cards. Analysts are predicting a return to profit this year, albeit a tiny one, but the impressive earnings forecast for 2018 would drop the P/E to a lowly 10.

Admittedly that’s more than a year ahead, and oil prices are still low and potentially volatile — so there’s risk, but I see it as overblown.

More oil discovered

An update from the company’s Platanillo-25 well, which is the 20th in the Platanillo drilling campaign, has been “successfully side tracked to a total depth of 8,620 ft measured depth, on time and budget“, and the early signs suggest there’s an oil column of 22 feet in the ‘U sand’ formation. The company says it “expects to initiate commercial production from the U sand … in approximately 10 days.“

This follows on from the interim report in September which revealed a 69% rise in production to 4,475 bopd, with 8 mmbo produced from Platanillo by that time. Revenue was up 57% to $38.2m and adjusted EBITDA came in at $7.6m with net cash of $8.5m generated. I reckon forecasts of pre-tax profit for the full year of around £6m (approx $8m) are looking too conservative.

Amerisur had cash of $29m too, so I see no liquidity problems. Profits over the coming years could be erratic, but I rate Amerisur a buy.

Desirable metal

Another resource stock I like the look of is Jubilee Platinum (LSE: JLP), which released a Q3 update Thursday. 

Operating revenue grew by 48% to £2.67m, with operating earnings up 193% to £0.85m. The firm’s Hernic mine saw operational earnings soar fivefold to £0.5m, with a production cost per ounce down to $476 from $901 at the same stage the year before.

With the company’s existing ops starting to bring in the cash, we could be looking at the start of a long-awaited turnaround now, after years of net cash burn. Losses have been falling quickly, with 2012’s loss per share of 2.43p falling to just 0.27p in 2016, and investors have been confident enough to keep buying the shares over the past couple of years.

In fact, at 4.4p today, the price is around double its early 2014 levels. But there is one major caution here…

Penny share risk

Penny shares can mean volatility. And no company starts out with penny shares — Jubilee shares were fetching as much as 120p back at their 2007 peak. That really does show the chance you’re taking when you invest in a speculative cash-burning ‘jam tomorrow’  stock and the jam takes much longer than hoped to turn up.

You should only invest in a share of this type if you really know what you are doing, but I can’t help thinking that Jubilee could finally have a profitable future ahead of it — and it does have further exploratory projects in its pipeline in addition to its productive mines.

If I did buy, it would be for at least 10 years and hopefully longer, to counter short-term volatility.

The post 2 undervalued growth stocks I’d buy and hold for 10 years appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Amerisur Resources. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, despite Hurricane’s bright outlook, there’s another small-cap oily that I believe presents a better buy for investors. 

A long way to go 

Over the summer, Hurricane raised $547m through a mix of convertible debt and equity to finance its Lancaster North Sea oil project. The regulatory green light for the project was given at the end of September and construction of the infrastructure required to start production during the first half of 2019 is already underway. 

But there’s still a lot to do before Hurricane is actually producing oil. For example, the early production system, which will initially target production of 17,000 barrels of oil per day, needs to be commissioned and manoeuvred into place. 

On the other hand, Hurricane’s peer Amerisur Resources (LSE: AMER) is already producing oil. And unlike Hurricane, which now has a mountain of debt to maintain and repay, Amerisur has a squeaky clean balance sheet. 

Strong balance sheet 

For the six months ending 30 June 2017, Amerisur reported cash and equivalents of $29m, and a cash inflow from operations of $8.5m. Thanks to the commissioning of a new pipeline allowing the company to export its oil production without having to rent oil tankers, the operating netback per barrel produced increased by 164% year-on-year to $29.6, up from last year’s $11.2. Adjusted EBITDA for the period rose 986% to $7.6m. 

The fact that the South America-focused oil producer is netting nearly $30/bbl from its oil production and generating cash with oil prices at $50/bbl is a testament to the firm’s low-cost operations and management’s cost-cutting actions. 

As well as cost-cutting, management has been busy using the firm’s cash-rich balance sheet to acquire distressed assets during the past few years. On these assets, the firm is targeting 16 gross new wells by the end of 2018 as it looks to boost production and cash generation. All drilling activity is expected to be funded by existing cash resources and cash generated. 

Profitable growth 

For 2018, City analysts are expecting Amerisur to report earnings per share of 1.9p, up 280% from 2017’s figure of 0.5p. Based on these numbers, the shares are trading at a forward P/E of 13.1. 

Hurricane, meanwhile, isn’t expected to produce any income until 2019, and plenty could go wrong for the business both before and after its Lancashire prospect comes online. 

With this being the case, I believe that Amerisur is a better buy. The firm is already generating cash, has a strong balance sheet, and is well positioned to profit as oil prices move higher. 

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Rupert Hargreaves has no position in any share mentioned. The Motley Fool UK has recommended Amerisur Resources. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today I’m going to consider the attractions of a small-cap commodity stock and a FTSE 100 engineer. Could these provide the ideal mix of growth and income for your portfolio?

Gushing cash flow

Shares of South America-focused oil producer Amerisur Resources (LSE: AMER) edged higher on Monday morning after the firm reported a 69% increase in half-year production.

The company said oil output from the Platanillo field in Colombia rose to 4,475 barrels of oil per day (bopd) during the six months to 30 June.

A combination of higher oil prices and rising production pushed H1 revenue up by 57% to $38.2m, while net cash from operations turned positive, rising from -$1.8m to $8.5m. The group ended the period with net cash of $29m.

More to come?

Amerisur’s progress over the last year or two has been a little slower than expected. But this £197m group still looks like one of the better choices in this sector to me.

Current production is said to be in excess of 6,000 bopd, and the company’s medium-term target is for production to reach 20,000 bopd. A total of 16 new wells are planned by the end of 2018, all of which are fully funded.

Analysts expect the firm to generate earnings of 1.4 cents per share this year, rising to 3 cents per share in 2018. That gives a forecast P/E of 16, falling to a P/E of 7.3 next year. I believe the shares could offer decent value — especially if oil prices continue to strengthen.

A FTSE sure thing?

Engineering group GKN (LSE: GKN) has shifted its focus towards aerospace over the last couple of years. The change has been well received by markets, as aerospace is seen as a good source of long-term growth.

Indeed, rumours suggest that the group has received at least one offer for its automotive division from a Chinese buyer. News that chief executive Nigel Stein is retiring — and will be replaced by the head of GKN’s Aerospace division — has added weight to these suggestions.

What seems clear to me is that GKN is modestly valued, and could be a rewarding long-term buy. The group’s shares trade on about 10 times forecast earnings, and offer a yield of 2.8%.

Although this may seem modest compared to some popular FTSE dividend stocks, it’s worth noting that GKN’s payout is expected to be covered more than three times by earnings. So a cut is extremely unlikely, even if profits fall short of expectations.

The group’s £1.8bn pension deficit is a risk, but this has fallen from £2bn at the end of 2016, and the group plans a further £250m reduction payment later this year. In my view, GKN’s large size and low debt levels mean that the pension deficit is an acceptable risk for shareholders.

I’d rate GKN as the kind of stock you can buy and tuck away for years. In my view the shares remain attractive at current levels — despite the recent surge, the shares are still 7% cheaper than they were six months ago. I can’t see any good reason for this.

The post One bargain growth stock I might buy with this FTSE 100 star appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of GKN. The Motley Fool UK has recommended Amerisur Resources. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Potential turnaround

Reporting on Friday was oil & gas exploration company Pantheon Resources (LSE: PANR). Its shares rocketed 17% on the back of some good news, but they are still down 55% over the course of the last year.

Pantheon Resources delivered a high share price rise on Friday because of its signing of a contract for the Polk County gas processing facility. The contract has been signed with Kinder Morgan, which is the largest energy infrastructure company in the US, to install and operate a 15mmcf/d capacity gas processing facility. Installation of the facility is due to start in August, with targeted first production by September. At current pricing levels, the facility is forecast to generate over $1.5m per calendar month of free cash flow to Pantheon.

Clearly, investor sentiment has improved significantly after today’s news. However, the company continues to trade on a relatively low valuation. Using next year’s forecast earnings, it has a price-to-earnings (P/E) ratio of just 9.4. This suggests that while its past performance has been disappointing, it may offer considerable upside over the medium term.

Improving outlook

Also offering capital growth potential within the oil & gas sector is Amerisur Resources (LSE: AMER). It has recorded a share price decline of 34% in the last year, although much of this could be due to weakness in the wider sector rather than internal challenges faced by the company.

Looking ahead, more difficulties are possible for the oil & gas industry. Although OPEC has signalled production cuts, thus far they have been insufficient to bring demand and supply into equilibrium. Therefore, the supply glut which has been present in recent years may continue over the medium term. This could cause downgrades to earnings outlooks and lead to more share price declines over a short timescale.

However, with Amerisur forecast to return to profitability in the current year before delivering growth of 87% next year, it could be worth buying at the present time. It currently trades on a price-to-earnings growth (PEG) ratio of just 0.1, which suggests that it offers high growth at a reasonable price.

Of course, both Amerisur and Pantheon could prove to be highly volatile in terms of their business performance and share price outlooks. However, with high potential returns, they appear to be worth the risk in the long run.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Amerisur Resources. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The well was tested in natural flow over a variety of choke sizes, together with appropriate closed-in pressure build-up periods to ascertain reservoir parameters and recorded a flow rate of 4,601 barrels of oil per day. This is a significant find for the company, which is targeting year-end 2017 production of 7,000 bopd.

Light at the end of the tunnel?

Like the rest of the oil sector, shares in Amerisur have struggled to gain traction over the past two years as low oil prices have scared investors away from the company. Still, despite the recent headwinds, over the long-term, shares in Amerisur have produced a positive return, gaining around 25% since the beginning of 2012. And while shares in the company have languished over the past few years, due to factors outside of management’s control, it now looks as if it is well placed to rekindle share price growth.

Management has been working hard over the past few years to improve Amerisur’s growth outlook by acquiring additional acreage at knockdown prices. At the same time, the long-awaited OBA Pipeline finally became operational at the end of last year, reducing cash operating costs for the firm from approximately $26 to under $15 a barrel.

Lower operating expenses and higher operational cash flow, coupled with Amerisur’s select acquisitions, has given management the confidence to set a near-term production target for the group of 20,000 bopd, more than double current output.

To achieve this goal, the company is planning to spend $65m over the next two years developing oil prospects and upgrading existing facilities. All of this spending will be funded with existing cash on hand and cash generated from operations. The company is producing a positive cash flow at $45/bbl oil according to management, something many of its peers are failing to do, putting Amerisur in a privileged position. It has accelerated its drilling schedule such that a minimum of 16 wells are planned between now and the end of 2018.

Earnings growth ahead

After several years of losses and consolidation, City analysts expect Amerisur’s earnings to take off over two years. The company hasn’t reported a pre-tax profit since 2014 but this year analysts have pencilled-in a pre-tax profit of £20.1m and earnings per share of 1.3p – based on current oil prices. For 2018, EPS are expected to expand by 85% to 2.4p as pre-tax profit more than doubles to £41.2m and revenue rises to £131m. Based on these estimates, the shares are currently trading at a 2018 P/E of 11.2.

So, after several years of lacklustre performance, it looks as if the shares could suddenly wake up over the next 12 months.

The post Is this growth stock about to take off? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Rupert Hargreaves does not own any share mentioned. The Motley Fool UK has recommended Amerisur Resources. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.