The oil price is rising again, judging by my recent trip to the filling station, and what’s bad news for motorists is good news for investors in oil and gas stocks.

Ticking over

FTSE 100 behemoths such as Royal Dutch Shell (LSE: RDSB) have delivered patchy share price growth lately, in fact Shell’s stock is at similar levels to five years ago. However, such firms will keep your portfolio’s engine running with generous dividends, in this particular case paying around 6% a year.

However, some of you will prefer to head for the wilder fringes of the industry in search of far juicier returns from the likes of Gulf Keystone Petroleum (LSE: GKP), the oil and gas exploration and production company focused on the Kurdistan region of Iraq, which has published its full-year 2018 results today.

Uplift

Its share price has flatlined for the last three years and is down 4% today, a judgement that seems harsh as it posted “record profit after tax and declaration of first dividend on strong financial performance“. The group also said it is on track for a “material uplift in production” to 55,000 barrels of oil per day in the first quarter, as production picks up.

Gulf Keystone posted record revenue, up 45% to $250.6m. It also posted $79.9m profit after tax, a substantial increase on $14.1m in 2017. The group had a year-end cash balance of $295.6m, up from $160.5m. It completed a $100m refinancing last July and says under current assumptions, all phases of its low-cost onshore Shaikan expansion programme are fully funded.

Dividends too

Management is now planning to pay $25m in ordinary dividends this year and “given its current financial strength”, the board is proposing to complement this with a $25m supplemental dividend.

The group’s share price has picked up this year, but clearly investors wanted more. Companies like this will always be risky, and City analyst reckons earnings per share could fall 26% this year, before rebounding by a mighty 126% in 2020. Gulf Keystone Petroleum looks promising for those with strong nerves, trading at 10.8 times forward earnings, while Alan Oscroft claims it could be the oil stock bargain of the decade.

Sure of this one

If that’s too wild and woolly for you, there’s always Shell. A massive £90bn giant with a finger in almost every energy pie (from renewable to shale), it showed its mettle during the recent oil price slump by continuing to pay its dividends.

Cost-cutting has whittled down its break-even oil price to $50 a barrel and it could go even lower, which means the cash should be flowing with the price now at $66. The other big threat to profits is the shift to renewables, but Shell is looking to head that off by investing billions in the new energy sector and has ambitions to become the world’s largest electricity supplier by the 2030s.

A global slowdown or recession would hurt, but at least you aren’t overpaying for its stock at 11.7 times forward earnings. Earnings per share could drop 4% this year but jump 18% next, and in the meantime there’s that yield. Currently a forecast 6%, with cover of 1.4. I reckon almost every portfolio should have a splash of Shell.

The post Here’s why I’d buy the undervalued Shell share price and 6% yield appeared first on The Twelfth Magpie.

More reading

• At less than £7, the Aviva share price looks very attractive right now. Here’s why
• Could a Stocks and Shares ISA eventually replace the State Pension?
• Up over 250%, are these AI names still among the top stocks to buy?
• Are Tesco shares losing their momentum?
• Rolls-Royce shares are at it again!

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.

Investors have responded negatively to a falling oil price, with a number of operators across the sector seeing their valuations come under increasing pressure. Since GKP is a relatively risky stock which lacks the diversity and financial strength of some of its FTSE 100 and FTSE 250 peers, its shares appear to have been hit relatively hard.

In the long run, could there be scope for a successful recovery? Or, should investors wait before considering the purchase of GKP and a sector peer which released an investor update on Monday?

Positive performance

The company in question is US-based oil and gas producer Diversified Oil & Gas (LSE: DGOC). It released an operations and trading update which showed that, based on its performance since the start of the year, its financial performance for the 2018 financial year is expected to be materially ahead of expectations. This news was well received by investors, with its share price rising by as much as 9%, at the time of writing.

The company appears to be making progress in terms of integrating the most recently-acquired assets from Core, as well as extracting the maximum value from its expanded portfolio. The dynamics for natural gas pricing in its region have remained positive, benefitting from a material rise in local pricing.

Looking ahead, the company is expected to report a rise in earnings of 86% in the 2019 financial year. This puts Diversified Oil & Gas on a price-to-earnings growth (PEG) ratio of 0.1, which suggests that it could offer a wide margin of safety. While potentially risky, its reward potential could be high, in my opinion.

Uncertain prospects

As mentioned, a falling oil price has been a major contributor to the decline in the GKP share price since late August. In fact, WTI crude oil has fallen from around $76 per barrel in October to trade at $53 per barrel presently. Concerns surrounding future demand as a result of the prospect for a slowing world economy seem to be weighing on investor sentiment towards the sector.

Furthermore, Iranian sanctions are unlikely to lead to the drop in supply which was anticipated due to waivers being implemented for the next 180 days. As such, the oil price could come under further pressure in the near term.

As a result, the prospects for GKP could be uncertain. Investors may demand a wider margin of safety, with its lack of financial strength versus industry majors potentially working against it as the sector is currently viewed less favourably than it has been for a number of months.

However, with GKP now having a PEG ratio of 0.1, it could be of interest to less risk-averse investors. Clearly, though, it remains a risky stock that could move lower in the near term, in my opinion.

The post Will the GKP share price ever recover to 300p? appeared first on The Twelfth Magpie.

More reading

• At less than £7, the Aviva share price looks very attractive right now. Here’s why
• Could a Stocks and Shares ISA eventually replace the State Pension?
• Up over 250%, are these AI names still among the top stocks to buy?
• Are Tesco shares losing their momentum?
• Rolls-Royce shares are at it again!

Peter Stephens 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.

For example, the Gulf Keystone Petroleum (LSE: GKP) stock price has moved over 25% lower in the last two months. With the potential for further volatility, could it be worth buying now alongside an industry peer which released a positive update on Tuesday? Or, are the risks still too high given the uncertainty surrounding the prospects for the industry?

Upbeat outlook

The company in question is oil and gas producer, developer and explorer Nostrum (LSE: NOG). It released an operational update for the nine months to 30 September 2018, with its average sales volumes during the period being 30,523 boepd (barrels of oil equivalent per day). This means that revenue for the first nine months of the year is expected to be $6m higher than in the previous year at $310m.

The company has made encouraging progress with its operational activities. In the third quarter, it saw an increase in sales volumes due to the successful testing of Well 40. It has now been shut as the company waits for the extension of the exploration licence, while it is close to completing the next two production wells in the Biski reservoir. This is expected to boost production, while it is targeting commissioning of GTU3 to start in the final quarter of the year.

With Nostrum forecast to increase its bottom line by 120% next year and it having a price-to-earnings growth (PEG) ratio of 0.1, it seems to me to offer an enticing risk/reward ratio for the long term.

Growth potential

Gulf Keystone Petroleum’s share price performance has clearly been highly disappointing in recent months. The company is relatively small, and lacks the diversity of some of its larger peers. Given its exposure to a region which contains significant geopolitical risks, I think its share price could remain highly volatile – especially if the wider oil and gas industry experiences an uncertain future.

The company, though, appears to me to offer growth potential. It has been able to deliver relatively sound operational performance, and this is expected to translate into profit growth in the next financial year. Its bottom line is forecast to rise by 62%, which puts it on a PEG ratio of 0.1. This suggests that while risky, its return potential could also be high.

The oil price may come under further pressure in the coming months, and this could act as a drag on the GKP share price. However, with the prospect of supply reduction due to sanctions and geopolitical risks across a number of OPEC countries, the future for the oil price may be more robust than investors are pricing in. As such, and while potentially only of interest to less risk-averse investors, I believe the stock could deliver a recovery over the long term.

The post The GKP share price has fallen 25% in two months. Time to buy? appeared first on The Twelfth Magpie.

More reading

• At less than £7, the Aviva share price looks very attractive right now. Here’s why
• Could a Stocks and Shares ISA eventually replace the State Pension?
• Up over 250%, are these AI names still among the top stocks to buy?
• Are Tesco shares losing their momentum?
• Rolls-Royce shares are at it again!

Peter Stephens 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.

Not all resources stocks have enjoyed such strong performance, though. Reporting on Friday was a mining company which could offer investment potential after a volatile period.

Uncertain outlook

The company in question is gold miner SolGold (LSE: SOLG). Its final results showed that it’s been an eventful year for the company, having progressed with substantial parts of its Ecuadorian portfolio. For example, its Cascabel project has moved ahead, while the company has also identified 10 key regional projects to progress on. It also raised £45m in November 2017 to continue drilling at Cascabel, and seems well-placed to deliver further progress over the medium term.

The company’s share price performance has been highly volatile in the last year. While it’s up 16% during the period, there have been large parts of the last 12 months where it’s also been significantly down.

Looking ahead, SolGold could experience further volatility. A rising US interest rate is making income-producing assets more attractive to investors, while a stronger US dollar is also hurting demand for gold, to some degree. In the long run, however, the prospects for the gold price could be positive due to the potential for higher inflation and economic uncertainty. As such, and while potentially volatile in the near term, the stock could have investment appeal.

Improving financial performance

Gulf Keystone Petroleum’s financial prospects are set to improve dramatically over the medium term. The company is expected to post a rise in earnings of 63% in the next financial year, and this could help to improve investor sentiment. With the company’s shares trading on a price-to-earnings growth (PEG) ratio of 0.1, they seem to offer an impressive buying opportunity, based on their risk/reward ratio.

Clearly, there’s still the potential for heightened geopolitical risk in areas the company operates. This could cause high volatility in future, but ultimately, this risk appears to have been priced into the company’s valuation when compared to both sector and index peers.

With the prospect of a buoyant oil price due to stable demand and an uncertain outlook for supply, the oil and gas sector could continue to perform relatively well. While there may be less risky options than Gulf Keystone Petroleum that have greater diversity and more stable balance sheets, for less risk-averse investors the stock could hold investment appeal. A 200% share price rise over the next year may not be possible, but significant capital growth could nevertheless be ahead over the long term.

The post How high can the GKP share price go after trebling in one year? appeared first on The Twelfth Magpie.

More reading

• At less than £7, the Aviva share price looks very attractive right now. Here’s why
• Could a Stocks and Shares ISA eventually replace the State Pension?
• Up over 250%, are these AI names still among the top stocks to buy?
• Are Tesco shares losing their momentum?
• Rolls-Royce shares are at it again!

Peter Stephens 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.

Part of GKP’s problem had been the plunging price of oil, but oil reversed its downtrend near the beginning of 2016. So, with its rebuilt balance sheet, the firm found itself in a strong position when the oil price really took off again last year. The cash flowed into the company coffers and to their credit, the Kurdistan Regional Government (KRG) managed to keep up regular payments to GKP for the oil produced after a long period of intermittent payments that were often deep in arrears before – a situation that had compounded GKP’s previous cash flow problems.

A reversal of fortunes

Since the beginning of 2018, the firm’s improved financial situation and operational outlook have combined with a growing pile of cash and pushed the share price around 120% higher. At first glance, it looks like the business and the shares have finally turned the corner and a decent recovery is under way. Indeed, today’s half-year results report is upbeat and details strong operational progress.

The report’s headline trumpets “record profit achieved and on track for production uplift at Shaikan.” The firm’s operations focus on the Shaikan oilfield in Kurdistan, which isn’t an ideal geographic location given the trouble in the region over the years. However, the company said in the report that operations “remained safe and secure” during the first half of the year, which has allowed production to progress according to plan and the firm is confident of hitting its goal of producing between 27,000 and 32,000 barrels of oil per day (bopd) for the rest of 2018.

GKP has extracted more than 50m barrels from Shaikan since production began and said in the report that the well behaviour matches its expectations and gives the company confidence in its geological model of the field. A new pipeline looks set to reduce operating costs and the company plans to invest in projects aimed at increasing production at Shaikan to 55,000 bopd during the second half of 2019, which raise the tantalising prospect of even greater profits and cash flow going forward.

Great figures

Today’s financial figures are good. Profit after tax exploded up to $26.7m from just $0.7m in the equivalent period the year before and net cash from operations moved to $61.2m from $30.1m last year. At the end of June, the cash balance stood at $219m, but we can see how fast the coffers are filling by the cash figure on September 7, which was $240m. Offsetting that is around $100m of debt.

Chief executive Jón Ferrier told us in the report that the firm signed a Shaikan crude oil export sales agreement at the start of the year, which “paved the way for the commercial progress that has been achieved.” The directors are confident about the outlook and I think the stock is well worth visiting now.

The post Thinking of buying shares in Gulf Keystone Petroleum? Read this first appeared first on The Twelfth Magpie.

More reading

• At less than £7, the Aviva share price looks very attractive right now. Here’s why
• Could a Stocks and Shares ISA eventually replace the State Pension?
• Up over 250%, are these AI names still among the top stocks to buy?
• Are Tesco shares losing their momentum?
• Rolls-Royce shares are at it again!

Kevin Godbold 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 in the long run, the retailer could now offer turnaround potential. It appears to have a wide margin of safety, with investors seemingly having priced in further disappointment for the mother and baby goods business. As such, it could be worth a closer look alongside another company which is expected to deliver improving levels of profitability over the medium term.

Uncertain outlook

The key Christmas period was a relatively disappointing one for Mothercare. It was unable to deliver the performance which it and the market was expecting. A lack of discounting for most of the period seems to have been a key reason for its sub-standard performance, while discounting late in the season meant that gross margin was relatively weak.

This comes after a period where the company appeared to be putting in place an improved strategy. Now, though, its future prospects appear to be highly uncertain. This could mean that there are more challenges ahead for the business – especially since the outlook for UK consumers is downbeat due in part to inflation being above wage growth.

Improving outlook

Despite the problems it faces, Mothercare is expected to report a rise in its bottom line in the 2019 financial year. Its earnings are due to increase by 30%, and then by a further 81% in the 2020 financial year. Clearly, there is scope for these figures to change and the company may miss its guidance due to difficult trading conditions. However, the figures also serve to show that the company may be able to deliver a turnaround faster than the market is currently expecting.

With the stock having a price-to-earnings growth (PEG) ratio of 0.1, it seems to offer growth potential at a reasonable price. While at the riskier end of the investment spectrum and currently experiencing financial uncertainty, it could be worth a closer look for less risk averse investors.

Future potential

Also offering turnaround potential is oil and gas production company Gulf Keystone Petroleum (LSE: GKP). It released results for the 2017 financial year on Wednesday which showed a profit for the first time since its entry into Kurdistan. Its net profit of $14.1m shows that it’s moving in the right direction, with significant operational progress having been made in recent years.

In 2017, the company met its gross production target, delivering average production of 35,298 barrels of oil per day (bopd). It also remains confident of meeting its near-term target of 55,000 bopd as it invests more heavily into its Shaikan project.

Looking ahead, Gulf Keystone Petroleum is expected to report a rise in earnings of 194% in the current year, followed by additional growth of 82% next year. Since it trades on a PEG ratio of 0.1, it appears to offer a worthwhile risk/reward ratio for the long run.

The post 85%-faller Mothercare isn’t the only turnaround stock I would buy today appeared first on The Twelfth Magpie.

More reading

• At less than £7, the Aviva share price looks very attractive right now. Here’s why
• Could a Stocks and Shares ISA eventually replace the State Pension?
• Up over 250%, are these AI names still among the top stocks to buy?
• Are Tesco shares losing their momentum?
• Rolls-Royce shares are at it again!

Peter Stephens 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.

Today I’m going to look at two stocks which were once popular, but have hit troubled times. Do either of them offer the value needed to stage a strong comeback?

Cheap oil = cash

Since completing last year’s refinancing, Kurdistan oil pioneer Gulf Keystone Petroleum (LSE: GKP) has performed surprisingly well, despite the political problems in Iraq and Kurdistan.

Friday’s operating update confirmed that production is stable at more than 34,525 barrels of oil per day (bopd). The company’s oil exports to Turkey are continuing without interruption, with around 200 trucks loaded per day.

Best of all, the group has received regular payments for its oil and appears to be generating positive free cash flow. Gulf’s net cash balance has risen from $12m on 5 April to $47.2m in October, despite the company making $10m of interest payments during that time.

If it’s sustainable, this strong cash generation makes the stock look cheap to me. Based on the increase in the group’s net cash balance so far this year, I estimate that Gulf Keystone stock currently trades on a price/free cash flow ratio of about 5.

On sale at a discount

The company’s current market value prices its 360m barrels of net 2P reserves at less than $1 per barrel. That seems cheap to me, if you believe Gulf will be able to produce and receive payment for these barrels successfully.

Unfortunately, this isn’t certain, given the political and operational difficulties in the region. This risk is probably the main reason why — at 95p — the stock is trading at a 38% discount to its book value of 153p. I’d rate this firm as a speculative buy, but would only consider taking a small position.

An interesting turnaround

Shares of troubled logistics firm DX Group (LSE: DX) rose by 14% on Friday morning, after the company issued its financial results for the year ending 30 June.

Sales rose slightly to £291.6m, but the group’s adjusted pre-tax profit fell from £11.5m last year to “£nil”. It’s an unusual result, but today’s share price rise suggests the market sees grounds for optimism.

One reason for this may be that a new management team has taken charge. Chairman Ron Series and chief executive Lloyd Dunn have a lot of industry experience, including the successful turnaround of Tuffnells, which they sold to Connect Group.

DX has also managed to secure a new £24m convertible loan. This will be used to refinance the firm’s operations and fund necessary restructuring and investment. Shareholders should note that this loan is convertible into shares at 10p each. Based on today’s market cap of £25m, this means that existing shareholders could face dilution of up to 50% if the group’s lenders choose to convert their loan notes into shares.

This dilution risk may be one reason why the shares currently trade on a 2018 forecast P/E of 7. If the loan was fully converted, this forecast P/E would rise to 14.

Despite this dilution risk, I believe DX could have turnaround potential. Although I wouldn’t want to pay much more than 10p-12p per share, I think the shares could be worth a closer look.

The post 2 bombed-out value stocks you may want to consider for 2018 appeared first on The Twelfth Magpie.

More reading

• At less than £7, the Aviva share price looks very attractive right now. Here’s why
• Could a Stocks and Shares ISA eventually replace the State Pension?
• Up over 250%, are these AI names still among the top stocks to buy?
• Are Tesco shares losing their momentum?
• Rolls-Royce shares are at it again!

Roland Head 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.

Looking ahead, more volatility could be on the cards. This may cause a high degree of uncertainty for oil and gas explorers and producers. However, here are three oil and gas stocks which could still offer investment potential over the long run.

Positive update

Reporting on Friday was Angus Energy (LSE: ANGS). The onshore oil and gas development company announced that operations at the Lidsey Oil Field are on schedule and that recent guidance is unchanged. Its drilling programme is on track, and it expects to recommence production in October.

Furthermore, the company has also reported further enhancements to its Brockham site. It has submitted amendments to its FDP (Field Development Plan) Addendum which include provisions for on-site power generation. There is also the added benefit within the plan of allowing Angus Energy to repurpose surplus power to National Grid.

While a relatively small player within the oil and gas industry, Angus Energy appears to be making encouraging progress with its strategy. Clearly, it is highly dependent upon further news, but it could deliver strong share price growth over the long run.

A new era

Also offering upside potential in the long run are Gulf Keystone Petroleum (LSE: GKP) and Genel Energy (LSE: GENL). They have faced a highly challenging period in recent years, with conflict in Northern Iraq making their operations much more uncertain. This has caused investor sentiment to decline, while underpayment for oil exports has also kept their financial performance at lower-than-anticipated levels.

Now, though, both stocks could offer favourable risk/reward ratios. The geopolitical outlook for the region has improved, and payments for oil exports are now being received on a regular basis. In fact, Genel recently signed a deal with the Kurdistan Regional Government (KRG) to provide it with a larger cut of future oil exports in return for a cancellation of previous amounts owed. Meanwhile, Gulf Keystone continues to await payment for some of its previous exports.

Investment potential

Looking ahead, both stocks are forecast to report significant improvements to their bottom lines. Next year, Gulf Keystone is expected to record a rise in its earnings of 120%, while Genel’s net profit is due to surge 70% higher. Despite this, they both trade on relatively low valuations. The two companies have price-to-earnings growth (PEG) ratios of 0.2, which indicates they offer wide margins of safety.

Given the continued uncertainty in the region, a wide margin of safety may be required in case there are unforeseen difficulties over the medium term which disrupt their financial and/or operational performance. However, with brighter outlooks and low valuations, Gulf Keystone and Genel appear to be highly enticing shares for the long run.

The post 3 bargain value stocks I’d buy right now appeared first on The Twelfth Magpie.

More reading

• At less than £7, the Aviva share price looks very attractive right now. Here’s why
• Could a Stocks and Shares ISA eventually replace the State Pension?
• Up over 250%, are these AI names still among the top stocks to buy?
• Are Tesco shares losing their momentum?
• Rolls-Royce shares are at it again!

Peter Stephens owns shares in National Grid. 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.

At one time the company was considered to have stellar potential. But overloaded with debt under previous management, it only survived the 2014-16 collapse of the oil price by shareholders suffering a painful debt-for-equity restructuring. Now languishing as a forgotten growth stock, I see the risk/reward balance as highly appealing for new investors today.

Transformed balance sheet

First and foremost is the transformation of Gulf Keystone’s balance sheet. A year ago – before the debt-for-equity swap – the company’s market cap was a mere £44m.  But net debt was a whopping $500m (£373m) making the enterprise value (EV) £417m.

Today, the market cap is £275m. But with the company reporting net debt of just $2m (£1.5m), the EV is less than £277m. So, we now have a company with an infinitely stronger balance sheet valued £140m cheaper than the former basket case.

Improved prospects

Gulf Keystone’s prospects have also improved in a number of other ways. The defeat of Daesh in nearby Mosul is one positive and the improving oil price, although still volatile, is another.

The company achieved average production of 36,664 barrels per day (bopd) during H1 and management reiterated full-year guidance of between 32,000 and 38,000 bopd. H1 gross operating costs per barrel were down to $3 from $4 and the company was cash flow positive through the period. Its Shaikan field remains a stable and predictable asset, set to produce for many decades to come.

With its strong balance sheet and positive cash flow, Gulf Keystone is now in a great position not only to make further investment to maintain plateau production at the nameplate capacity of 40,000 bopd, but also to increase production to 55,000 bopd and, in due course, higher still.

Stumbling block

The stumbling block at the moment is that while the Kurdistan Ministry of Natural Resources (MNR) is making regular payments to Gulf Keystone, these fall short of the contracted sums. The company estimates it’s owed a net $33m with regards to unpaid export sales (up from $25m at 31 December) and $76m net for past costs (up from $71m).

Management is reluctant to invest to increase production in these circumstances but continues what has been a protracted dialogue with the MNR “with the objective of achieving contractual and commercial clarity.” Encouragingly though, the board said today that it “notes the recent positive developments regarding the commercial terms agreed between the MNR and other international producers and draws comfort from this positive momentum.”

Favourable risk/reward ratio

The ongoing geo-political uncertainty in the region – one of the things impacting on negotiations with the MNR – makes Gulf Keystone a higher-risk proposition and not a stock for risk-averse investors. However, there’s nothing new in this regard. What is new is that the company is now far stronger and the stock far cheaper, making the risk/reward ratio considerably more favourable than in the past. As such, I rate the shares a ‘buy’ at their current level.

The post Gulf Keystone Petroleum Limited: a forgotten growth stock with stellar potential appeared first on The Twelfth Magpie.

More reading

• At less than £7, the Aviva share price looks very attractive right now. Here’s why
• Could a Stocks and Shares ISA eventually replace the State Pension?
• Up over 250%, are these AI names still among the top stocks to buy?
• Are Tesco shares losing their momentum?
• Rolls-Royce shares are at it again!

G A Chester 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.

Well, GKP certainly appears to have arrested the decline and begun to once again plan for the future rather than race to save itself from bankruptcy. The key was a $500m debt for equity swap and concurrent rights issue in October that saw a gargantuan net debt position turn into a small net cash position.

The company also received a significant amount of government help, as an improving financial position for the Kurdish regional government has allowed it to make the requisite royalty payments to GKP for oil delivered every month since September 2015.

But major problems remain that I believe make the company one to avoid for all but the hardiest contrarians. For one, the region is still beset by violence in Syria and western Iraq. While Kurdistan’s borders are once again safe for the time being, history has shown that another violent flare-up is never too far away. This would likely mean GKP’s finances would once again be thrown into disarray should the Kurdish government not have the funds to pay for the oil it takes.

Second, oil from Kurdistan remains very cheap as the high costs of transporting it to international markets constrict the price buyers will pay. This has led to Gulf Keystone’s long history of bleeding cash from operations, with H1 2016 its first ever period generating net positive cash flow.

While operations turning cash flow positive and a much improved financial position are heartening, it would take a far more risk-hungry investor than myself to invest in a Kurdish oil producer with a long history of failing to reward shareholders.

You can’t hear shareholders scream in space 

Shares of satellite operator Inmarsat (LSE: ISAT) are near three-year lows as suppressed demand for the company’s maritime sector satellites and an industry-wide explosion in supply dent profit forecasts. With shares of the company trading at a seemingly cheap 15 times forward earnings while offering a 6% dividend yield, should would-be investors bite?

A 4.9% year-on-year drop in revenue from the group’s most important segment, maritime services, can be chalked-up to external headwinds facing the industry due to low bulk shipping prices and a poor offshore oil & gas environment. But more worrying is the fact that increasing competition from rivals moving into Inmarsat’s traditional markets is leading to lower prices across the industry.

This has led many analysts to call for industry consolidation as a means of lowering supply and increasing prices. We’ve yet to see this though and until there is some evidence that the industry’s supply/demand dynamic will return to normal, I see little cause to buy shares of Inmarsat.

Furthermore although the 6% dividend yield on offer is tempting, investors should be wary that earnings aren’t expected to cover payouts this year. And with $1.9bn in net debt the company can’t afford uncovered dividends forever. A sector convulsed by over supply and weak demand is enough to keep me away from shares of Inmarsat for the time being.

Worried about Inmarsat’s 6% dividend yield?

The post Gulf Keystone Petroleum Limited or Inmarsat plc: which falling knife should you catch? appeared first on The Twelfth Magpie.

More reading

• At less than £7, the Aviva share price looks very attractive right now. Here’s why
• Could a Stocks and Shares ISA eventually replace the State Pension?
• Up over 250%, are these AI names still among the top stocks to buy?
• Are Tesco shares losing their momentum?
• Rolls-Royce shares are at it again!

Ian Pierce 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.