But while many of us were guzzling mince pies and turkey, takeover activity has been ramping up in the oil market.

In the run-up to Christmas, North Sea firm Faroe Petroleum (LSE: FPM) received an offer from Norwegian firm DNO. And when markets opened on 2 January, the Ophir Energy (LSE: OPHR) share price rose by nearly 35% when management confirmed that takeover talks are under way.

Today I want to take a look at the latest updates from Faroe and Ophir, and ask whether Premier Oil could be the next company to be targeted by a larger rival.

This offer seems too low to me

DNO’s attempt to buy Faroe Petroleum has triggered a war of words between the two firms. Faroe management said that DNO’s 152p per share bid is “opportunistic and substantially undervalues Faroe”.

In contrast, DNO thinks that “Faroe has failed to deliver consistent shareholder returns over the last 15 years” and suggested the firm could struggle to realise the full value of its assets.

In a statement on Wednesday, Faroe said that an independent valuation of its assets suggested a fair price of 185p to 225p per share. That’s 22% to 48% above the existing DNO offer.

My view: I think DNO’s offer of 152p probably is too low. But there’s no guarantee it will offer more and the offer could still fall through. I’d sit tight, but would not buy more Faroe shares.

Ophir surges 35% as talks confirmed

The share price of Asia- and Africa-focused oil and gas firm Ophir Energy flicked higher on New Year’s Eve. When the City returned to work on 2 January, the company issued a formal statement revealing that it’s in takeover talks with Indonesian firm Medco Energi.

I’ve written about the potential appeal of Ophir’s assets before. Today’s news has lifted the group’s share price by more than 30% to about 47p, but as yet there’s no guarantee that Medco will make an offer for the stock.

My view: I think Ophir shares could still be cheap enough to offer an opportunity, but there’s still a risk that no agreement will be reached. I’d hold.

A Premier buy?

One thing both Faroe and Ophir have in common is that they have low debt levels and plenty of cash. This isn’t true of Premier Oil, where net debt was expected to be $2.4bn at the end of 2018.

The company does have a plan in place to repay borrowings and also has the support of its lenders. However, last year’s oil price slump could slow the pace of debt reduction. And the firm’s high level of debt means that management needs the approval of lenders for any major investment decisions. This could restrict the company’s ability to grow.

My view: I think a potential bidder might decide that it could squeeze more profit out of Premier’s assets if the firm was freed from its debt burden. In my view, the current depressed share price could trigger an opportunistic bid.

The post Is the Premier Oil share price now good value, after 50% fall? appeared first on The Twelfth Magpie.

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Roland Head owns shares of Premier Oil. 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.

Faroe Petroleum (LSE: FPM) has been cooking with gas lately, its stock bubbling up 58% in the last year and 136% measured over two years. It is up another 2.37% today on publication of a positive set of interims for the six months to 30 June.

So Faroe, so good

Management highlighted the “significant resource upgrade” from its Iris Hades discovery, announced in April and its largest discovery to-date, adding 42m barrels of oil equivalent (mmboe). This helped to offset a drop in production to 12,402 barrels per day from its existing portfolio, due to temporary halts in production at Trym and Tambar in Q1. Adjusted revenue rose slightly from £95.5m to £102.2m as higher commodity prices offset lower production during the period. 

The independent oil and gas explorer with a focus on Norway and the UK turned last year’s £300,000 operating loss into a profit of £82.5m. Net cash at 30 June stood at £82.6m, up from £75m at 31 December 2017. 

Well on track

The £591m group’s exploration programme continues with six firm well prospects as CEO Graham Stewart hailed “a period of strong profitability, effective portfolio management and material exploration success.” The unrisked resource targeted by the firm’s six-well exploration campaign programme is estimated to be in the range of 80-150 million barrels, with its investment programme fully funded.

I was surprised and delighted to discover that I tipped this stock almost exactly one year ago, concluding that “if you think the oil price recovery is set to continue, Faroe might be a good way to play it”. The danger is that the recovery is complete and it may struggle to offer investors another great leap forwards.

Premier investment

A rising oil price floats all tankers and FTSE 250 listed Premier Oil (LSE: PMO) is up 96% over the last 12 months, leaving loyal investors gushing. August’s half-yearlies showed profit after tax more than doubling from $40.7m to $98.4m, while its worrisome net debt has been trimmed from $2.72bn to $2.65bn.

Cash flows from operations did fall slightly, from $282.7m to $276.6m, as asset sales, natural field decline and planned shutdowns cut production from 82,100 barrels a day to 76,200. Happily, rising oil prices offset that. The £1bn company has been working hard to shrink its net debt pile, which it reckons could be cut by a further $300m-$400m by the end of the year.

Catcher catch can

The key to Premier’s success is its Catcher field. It is now at plateau production rates topping 70,000 barrels a day which, together with higher commodity prices, is driving free cash flow and cutting net debt. CEO Tony Durrant said it remains focused on maintaining its low cost base and will continue to secure savings against budgeted expenditure.

Like many oilies, Premier is now reaping the benefit of major cost-cutting when oil slumped below $30 a barrel. Those who remained loyal during the dark days have been well rewarded, and it still trades at a forward valuation of just 8.4 times earnings. Back in March I said “absurdly cheap Premier Oil looks like an unmissable bargain stock”. I got that right too.

The post The soaring Premier Oil share price and this North sea explorer are making investors rich appeared first on The Twelfth Magpie.

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harveyj 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.

After several years of rough trading, it now looks as if Enquest is back on track. The company’s flagship Kraken development is online, and the producer is now guiding for oil production of 50,000 to 58,000 barrels of oil per day for 2018, up from last year’s figure of 37,405 bbl/d. 

Cash flow growth

According to Enquest’s full-year 2017 numbers, which were published today, this year the firm expects its production cost per barrel to fall to $24, compared to 2017’s figure of $26. Meanwhile, capital spending is set to drop 47% to $250m. The group has hedged 7.5m/bbls of oil at an average price of $62/bbl. 2017’s average realised oil price was $52.2/bbl. 

Put simply, during 2018 Enquest’s oil production is set to grow 55%, and the average cost of production will fall approximately 8%. All in all, this implies Enquest’s profitability should jump during 2018, and it should be able to start meaningfully reducing its debt. 

Net debt was just under $2bn at the end of 2017 or around 6.6 times EBITDA.

According to my calculations, if cash produced from operations jumps 55% during 2018, (in line with the higher level of production to $471m) Enquest could be on track to report free cash flow from operations of $221m this year. That’s enough to pay down 10% of the debt mountain (in the long term City analysts are forecasting a free cash flow of as much as $700m). These figures do not take into account higher oil prices, nor the lower average production cost of each barrel, so they are highly conservative estimates. 

And based on these estimates, shares in the company are trading at a price-to-free cash flow ratio of 2.3, making Enquest one of the cheapest stocks around today. If the firm can get debt under control, then I don’t believe it will be long before the shares attract a higher multiple. 

Production surge

Another small-cap oily I’m positive on the outlook for is Faroe Petroleum (LSE: FPM). Faroe’s portfolio consists of approximately 60 exploration, appraisal, development and production licenses in the North Sea, and it is unique among early-stage oil companies as it’s actually producing oil.

According to the firm’s final figures for the year to the end of December, the company produced an average of 14,349 bbl/d in 2017, down 18% on the year due to the suspension of production from two key assets, the Njord and Hyme wells. 

Still, 2018 could be a transformational year for the company as management has earmarked £80m for the development of key assets as it pushes towards its target of more than doubling production to 35,000 bbl/d. With unrestricted gross cash of £149m at year-end, Faroe has plenty of capacity to pursue this goal. 

If everything goes to plan, and the company can continue to produce oil while unlocking value from its portfolio of assets, City analysts estimate Faroe could earn 3.4p per share in 2018, giving a forward P/E of 31. This multiple might look expensive, but in my view, it does not take into account any potential upside from higher production or a successful drilling programme. With this being the case, I believe shares in Faroe could leap higher if performance in 2018 turns out better than expected. 

The post 2 top value stocks I’d buy in April 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.

However, the prospects for a number of commodities now seem to be improving. After growth in recent months, there could be the potential for even higher prices over the medium term. As such, now could be the right time to buy resources shares. With that in mind, here are two stocks that could deliver high returns in the long run.

Improving outlook

Reporting on Tuesday was oil and gas company Faroe Petroleum (LSE: FPM). Its production in 2017 averaged 14,300 bopd (barrels of oil per day), which is at the upper end of guidance. Its production for 2018 is expected to be between 12,000 and 15,000 bopd. In 2017, it delivered an increase in 2P (proved plus probable) reserves to 97.7 mmboe following the successful Brasse appraisal well. This means that its 2P reserves are up 20% to record levels.

Looking ahead, the company appears to have a bright future. The oil price has already pushed past $70 per barrel and could deliver further growth in the next year. There could be a demand deficit in future months, with there being the potential for continued cuts to supply from OPEC nations. This means that the company’s financial performance could improve substantially.

In fact, Faroe Petroleum is expected to report its first profit since 2013 this year. Next year it is due to record a rise in its bottom line of around 254%. This puts it on a forward price-to-earnings (P/E) ratio of around 11, which suggests that it offers a wide margin of safety. This indicates that now could be the right time to buy it.

Stronger business

Also offering upside potential within the resources industry is Glencore (LSE: GLEN). The company is finally expected to put the difficulties of recent years behind it, with it forecast to return to profitability in the current year. This in itself could have a positive impact on investor sentiment and its share price, since investors are likely to have priced in a degree of uncertainty regarding its financial performance.

Looking ahead to next year, Glencore is forecast to post a rise in earnings of 18%. This would represent a solid result in what may prove to be uncertain times for commodity prices. And while its performance is directly linked to commodity prices, investors also seem to have priced in some level of risk in this area. The stock’s price-to-earnings growth (PEG) ratio of 0.6 suggests that it could offer high returns, while its downside risks may be relatively low.

With Glencore having a diverse business model and a stronger balance sheet following a period of self-help initiatives, it could be a strong performer in the long run.

The post 2 stocks I’d invest £1,000 in for the next decade appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any 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.

Sonic boom

This upstream gas company has been hit by the languishing oil price and disappointing results from its Badile onshore project in Italy, currently being plugged and abandoned. It is now shifting its focus to Africa, after completing the acquisition of its interests in the Oil & Gas Investment Fund in Eastern Morocco, which it funded by placing 27% of its share capital.

The AIM-traded firm holds a 75% position, of which 27.5% is shared with Schlumberger, giving it a net 47.5% stake. It has previously said this new hydrocarbon province in Eastern Morocco should be absolutely “transformational for both Sound Energy and Morocco”.

High Energy

That sounds exciting but there is still a long way to go operationally, and investors will want to see drilling underway before getting excited all over again. We should discover more on 5 October when Sound Energy holds an investor event in London to detail a series of new programmes set to commence in the fourth quarter. If that goes well, the recent recovery in the oil price, which has lifted Brent crude to $57, could trigger renewed interest.

Sound Energy’s share price is up 20% in the last month, so investors are already edging back. Some will be tempted to get in ahead of upcoming news announcements, but you must also understand the risks.

There is better visibility at Faroe Petroleum (LSE: FPM), an independent oil and gas company focusing on Norway and the UK, which has just announced its interim results for the six months to 30 June.

So Faroe, so good

The share price is up around 1.5% on the report, which is pretty solid. Over two years, the stock is up 48%, despite the unsuccessful Goanna exploration well in the Norwegian North Sea, in which it held a 30% stake. Its Brasse appraisal well looks more promising, benefitting from a “significant resource upgrade” that lifted recoverable volumes around 20% to 56m-92m barrels of oil equivalent (mmboe).

Today’s results reported “good production performance and all projects progressing to plan and on budget”. This was even through average first-half production of 14,800 barrels of oil equivalent per day was down from 18,800 last year, as its Njord and Hyme facilities temporarily close for life-extending refurbishment and upgrades. With average operating costs of approximately $26 per barrel, Faroe looks well set to survive cheap oil, and even better placed if oil kicks onto $60 a barrel. Either way, it has hedged 30% of oil production to December 2018 at an average of $55 a barrel.

Recovery play

CEO Graham Stewart hailed Faroe’s growing recoverable resource range, low cost exploration and appraisal programme, and rapid payback on its recent purchase of four fields from DONG. “Faroe now has a strong and diversified asset base with a clear path to increase profitable production to over 40,000 boepd within the next five years, with robust project economics even at low commodity prices.”

If you think the oil price recovery is set to continue, Faroe might be a good way to play it.

The post Why I’d buy this North Sea energy play instead of Sound Energy plc appeared first on The Twelfth Magpie.

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Harvey Jones 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.

However, now could be the right time to invest due, in part, to the potential for improving bottom lines. Here are two companies which could offer just that over the medium term.

Encouraging progress

Announcing an operational update on Monday was upstream gas company Sound Energy (LSE: SOU). It reported that operations to re-enter and test the Koba-1 well at Sidi Moktar have now commenced. The company expects to perforate and test the Lower Liassic, as well as a potential testing of the Argovian. This is due to last around 10 days, with the rig then planned to move to the Kamar-1 well for the second stage of the operation.

In addition, the company’s drilling programme at the Badile exploration well in Italy is continuing. It has reached a measured depth of 4,328m within the Medolo Formation. Drilling will continue towards the reservoir which the company expects to penetrate later this month.

The update has not been particularly well-received by the market, with Sound Energy’s share price declining by around 4%. However, with the company’s shares having soared by 278% in the last year, it could be a case of some profit-taking after further encouraging news.

Looking ahead, more share price growth could be ahead for Sound Energy. It has a relatively robust financial position, with its drilling programme for next year already funded. As such, now could be the right time to buy it, with the company remaining relatively risky due partly to an uncertain outlook for the wider sector.

Improving prospects

Also having upbeat potential is sector peer Faroe Petroleum (LSE: FPM). Unlike Sound Energy, it is expected to move from loss to profit within the next two years. This has the potential to boost its share price performance after a gain of 25% in the last year, since investors may see a black bottom line as a milestone regarding the progress being made by the business.

While Faroe Petroleum’s shares appear to be rather generously priced, earnings growth could mean they demand a higher valuation. For example, they currently trade on a price-to-earnings (P/E) ratio of 31 using next year’s forecast earnings growth rate. However, with the company having a relatively strong balance sheet and an impressive asset base, it has the potential to grow earnings in order to justify its current valuation over the medium term.

Faroe Petroleum has been able to double production in the last year, while also increasing its reserves. Against a challenging industry backdrop, this shows that the company’s strategy is working well, and further increases could positively catalyse investor sentiment. Therefore, despite being a relatively high-risk stock, now could be the perfect time to buy it.

The post 2 small-caps with strong growth outlooks appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens has no position in any 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.

Faroe announced a small discovery that should boost the reserves of one of the firm’s existing production assets, while Hurricane’s latest well test appears to confirm the production potential of its Lancaster field.

In this article, I’ll explain why I believe Hurricane and Faroe are among the best small-cap buys in the UK oil and gas sector.

Creating value for shareholders

Faroe Petroleum said this morning that the Njord North Flank NF-2 well in the Norwegian Sea had found between 1.9 and 28.3m barrels of oil equivalent. A sidetrack well was used to confirm the extent of the discovery, which contained separate reservoirs of oil and gas.

Although Faroe’s interest in this fairly modest discovery is just 7.5%, it lies close to the firm’s existing Njord field. Production from Njord is currently suspended as part of a major expansion project, but I expect that in due course these latest discoveries will be tied into the Njord platform for production, boosting the group’s reserves.

Faroe’s strong reserves and its equally strong balance sheet make this stock a compelling opportunity, in my view. This year’s acquisition of the DONG assets in the North Sea is expected to increase Faroe’s 2P reserves by 2.5 times to 81mmboe. The balance sheet remains strong, with no debt and hedged cash flow from existing production.

The company expects production to rise from 16-18mboepd at the end of 2016, to 40-50mboepd over the next five years. A number of major projects are being developed that should benefit from lower-than-expected costs.

Faroe’s current market cap of £279m values the group’s 2P reserves at $4.20 per barrel. Today’s share price of 78p puts the stock on a P/E of 13 times 2017 forecast earnings. In my view, the medium-term value of the business is likely to be significantly greater than this. A takeover bid is also possible.

I rate Faroe as a buy at current levels.

The North Sea’s most exciting prospect?

Hurricane Energy’s Lancaster field is fast becoming one of the most exciting prospects in the North Sea. The group said this morning that a horizontal well designed to help plan the Lancaster field development had flowed at 14,500 bopd without producing any water.

That’s more than the 11,000 bopd maximum that flowed from the company’s first well, so seems like positive news to me.

Hurricane is still working on the final numbers for the Lancaster field, but chief executive Dr Robert Trice said recently that he believes the field is “likely to be significantly greater than the 200mm bbls 2C case.”

The company is working towards a development plan for the field, which it believes will have lifetime operating costs of $26 per barrel.

An updated set of contingent resources estimates are expected later this year, once well operations have completed. If Dr Trice is proved correct and the mid-case estimate rises above 200m barrels, I believe Hurricane could see fresh interest from investors. In my view the shares remain decent value at under 40p.

The post Are these North Sea firms the best buys in the oil sector? appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head 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.

Faroe Petroleum

Faroe Petroleum has today announced the commencement of drilling of the Njord North Flank-2 exploration well in the Norwegian North Sea. It will target Middle and Lower Jurassic sandstone reservoirs of the Ile and Tilje. If successful, it will add another tie-in opportunity for Faroe in the Greater Njord Area and follows on from the significant Faroe-operated Brasse oil and gas discovery well and side-track announced last month.

As well as the drilling update, Faroe has also announced news on its acquisitions from Dong Energy. Since no existing partners in the Ula field have taken up their option, the transaction can proceed as expected.

Clearly, Faroe is adopting a fast pace of development in what remains a challenging oil environment. With costs having fallen across the industry, this strategy makes sense because it means that drilling costs are kept to an absolute minimum. This should provide the company’s investors with greater confidence in the financial capabilities of the business, while its asset base offers improving financial performance over the medium-to-long term.

As a small operator without the diversity of an oil major, Faroe remains relatively risky, but its potential rewards are also high.

Roxi Petroleum

Roxi Petroleum has today announced that it has spudded Well 141 as it seeks to replicate the success of Well 143 at its flagship BNG asset in Kazakhstan. Well 141 is located 1.1km from Well 143, with a planned depth of 2.5km. Well 143 has produced at a maximum rate of 815 barrels of oil per day (bopd) and the first indications from it were that the shallow horizon extends over a significant area. This bodes well for future drilling and means that the BNG asset continues to offer an upbeat long-term outlook for Roxi.

Roxi’s financial standing remains sound. In its most recent financial year, the company’s bottom line increased from a profit of $5.7m in 2014 to a profit of $10.6m in 2015. Furthermore, with it currently producing in aggregate 616 bopd from three shallow wells, its drilling programme appears to be relatively well-funded. This reduces the chance of a fundraising in the near future and means that the company could continue to deliver upbeat performance.

However, with Faroe having a stronger asset base and larger size and scale benefits, it’s the better long-term buy at the present time. Both companies could perform well, but Faroe has a more appealing risk/reward ratio than Roxi.

The post Which is the best small-cap oil stock after today’s news? appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens 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.

A 66-year dividend history

Royal Dutch Shell (LSE: RDSB) hasn’t cut its dividend since WWII. The company is committed to maintaining the current payout of $1.86 per share, which equates to a yield of 7% at current prices. Last week’s interim results disappointed the market, but six months is nothing to a group like Shell, whose business plans stretch decades into the future.

Shell’s full-year profits are expected to rise by 40% in 2016 and by 67% in 2017. At 2,000p, I believe the shares are decent value for long-term investors.

A focus on cash returns?

Vietnam-focused oil and gas producer SOCO International (LSE: SIA) reported net cash of $90m on 8 June. That means about 27p of the current 150p share price is covered by cash. Generating cash is very much a focus of SOCO’s operations, perhaps because founder and chief executive Edward Story owns 4.4% of the firm.

SOCO’s low operating costs mean that it can achieve cash flow break-even with oil in the low $20s per barrel. The firm is also pursuing a $52.7m payment owed to it from a past asset sale. Future cash returns could be generous.

North Sea opportunity

Norwegian North Sea operator Faroe Petroleum (LSE: FPM) recently spent $70m to acquire a number of new producing assets from Norwegian firm DONG E&P. These are expected to add 8,000 barrels per day of production to Faroe’s output.

The new assets’ operating costs are estimated at around $19 per barrel. They’re expected to reduce Faroe’s group operating costs to $26 per barrel, compared to $30 per barrel without the acquisition. I believe Faroe shares could do well over the next few years.

Poised for profit?

Ithaca Energy (LSE: IAE) operates in the UK North Sea and is about to open the taps on the transformational Greater Stella Area development.

Stella is expected to add 16,000 barrels of oil equivalent per day (boepd) to Ithaca’s existing production of 9,000 boepd. Analysts are forecasting a profit of $47m on revenue of $454m for 2017. That puts Ithaca stock on a 2017 forecast P/E of just 6.1.

If Ithaca can use the Stella cash to quickly repay its $606m net debt, then I believe the firm’s shares could deliver big gains from here.

A high-quality explorer?

Raising cash for oil exploration is tough in the current environment. But North Sea firm Hurricane Energy (LSE: HUR) managed to raise £52m in a placing at 15p per share in April.

At the time, this represented a 46% premium to the previous day’s closing share price of 10.3p per share. That’s an impressive achievement, reflecting investors’ confidence in Hurricane founder Dr Robert Trice and the firm’s Lancaster oil field.

If this year’s two-well drilling plan is successful, I believe Hurricane could deliver further gains for shareholders.

The post 5 stocks to buy during this oil market retreat? appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
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Roland Head owns shares of Royal Dutch Shell. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Poundland’s uncertain results are likely to get an easy ride today, given yesterday’s news that South African group Steinhoff is considering a cash bid for the firm. However, I imagine Steinhoff’s analysts will be taking a very close look at the results.

In my view, the outlook is fairly positive. Although Poundland shares look superficially expensive on an underlying P/E of 17.5, cash generation and profits should improve significantly this year.

Poundland expects capital expenditure to fall from about £45m last year to £25m in 2016/17, now that the conversion of the 99p Stores acquisition has been completed. Sales are also rising strongly — revenue rose by 19% to £1,326m last year.

I suspect any offer from Steinhoff will be at a reasonable premium to the current share price of 205p, so in my view shareholders should hold on.

A bargain oil stock?

Shares in Norwegian North Sea specialist Faroe Petroleum (LSE: FPM) rose by 7% this morning, after the firm announced an oil and gas discovery at its Brasse exploration well.

Faroe said that the well found an 18 metre gas-bearing interval and a 21 metre oil-bearing interval. The firm is now drilling a sidetrack well to confirm the extent of the discovery. A successful sidetrack could help confirm the commerciality of this discovery.

Faroe flies under the radar of many oil and gas investors, but I believe this stock could deliver significant further gains. After recovering strongly earlier this year, Faroe shares have fallen back from a high of 92p to just 66p. The firm has production of around 10,500 boepd with an average operating cost per barrel of just $23. Faroe also has no debt and had net cash of £68m at the end of 2015.

In my view, this could be a good stock to buy and tuck away for a year or two.

Sell before it’s too late?

Unfortunately the outlook is much grimmer for shareholders of Faroe’s North Sea peer, Xcite Energy Limited (LSE: XEL).

Xcite shares fell by 19% after the firm issued a statement this morning making it very clear that existing shareholders are likely to face further losses. It’s been clear for some time that Xcite would be unable to meet scheduled debt repayments of $139m at the end of June.

Today’s statement confirms that a meeting of the firm’s bondholders has been called for June 30. Xcite says it has already been in discussions with the bondholders regarding restructuring options. It’s clear that Xcite hasn’t been able to find a buyer or partner for its Bentley field. The firm says that “it is likely” that Xcite’s refinancing will involve swapping a portion of the bonds for new shares in the company.

As the amount outstanding on the bonds ($139m) is much greater than the current market cap (about $41m), I believe significant dilution is likely for existing shareholders. I’d expect the new shares to be issued in large numbers at a much lower price than the current value of 9p.

In my view, Xcite remains a strong sell.

The post Are Poundland Group plc, Faroe Petroleum plc and Xcite Energy Limited must-buy stocks after today’s news? appeared first on The Twelfth Magpie.

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Roland Head 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.