Looking forward, could further falls be ahead for the company? Or does it offer significant turnaround potential following its operational update released on Friday?

Improving performance

The company’s performance in the 2017 financial year was generally encouraging. Its net production averaged 2,335 boepd (barrels of oil equivalent per day) for the year. Operating costs for the year were around $28.50 per barrel of oil. It expects to deliver net production of between 2,300 and 2,400 boepd in 2018.

During 2017, the company’s 2P (proved plus probable) reserves replacement was over 100%. Its cash balance at the end of the year was £15.8m, while it had net debt of £6.1m. This shows that it appears to have sufficient financial resources to implement its current strategy. And with the price of oil having risen significantly, it is generating free cash flow in its conventional business. This could mean it is better placed to deliver on potential additional projects with attractive prospects.

Looking ahead, the current year could be an eventful one for IGAS Energy. Its drilling programme is set to continue, with there being the potential for positive news flow on this front. Furthermore, with the supply surplus of oil not expected to return in 2018, the prospects for the wider oil and gas industry appear to be improving. As such, the company’s stock price could enjoy a relatively prosperous 12 months.

High growth potential

Also offering upside potential within the oil and gas sector is Nostrum (LSE: NOG). The Kazakhstan-focused explorer and producer has also experienced a challenging period, with its bottom line moving into the red in 2016. However, it is expected to return to profit in the 2017 financial year. Following an expected £1m pre-tax profit in 2017, its profit is forecast to rise to as much as £94m in 2019. This could prompt a significant improvement in investor sentiment.

Since the stock currently trades on a forward price-to-earnings (P/E) ratio of just 6.2, it appears to offer a wide margin of safety. This suggests that there could be a high level of capital return potential on offer, and may mean that the stock is able to post a recovery following its 35% share price decline over the last year.

Certainly, if the oil price experiences a disappointing period then this could cause Nostrum’s forecasts to be downgraded. But with such a wide margin of safety, the company appears to have an attractive risk/reward ratio for the long term.

The post Is IGAS Energy plc’s 55% share price slump set to continue in 2018? appeared first on The Twelfth Magpie.

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• 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?
• 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. 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.

Positive update

Reporting on Tuesday was oil and gas producer Nostrum (LSE: NOG). The company’s half-year results showed it is making progress with its strategy. Revenue increased from $163.5m in the first half of 2016 to $210m in the same period of the current year. Its net operating cash flow of $118.5m was a major improvement on the $78.9m from the prior year. Its transport per barrel of oil equivalent cost was further cut to $5 from $5.30 last year, which shows the business has the potential to become increasingly efficient over the medium term.

Nostrum’s average daily production for the six-month period was 46,685 barrels of oil equivalent. It has been able to deliver a successful new bond issuance, while its construction of the third Gas Treatment Unity continues to be in line with guidance. This is due to complete before the end of 2017.

With Nostrum having recorded a share price fall of 24% in the last three months, it has clearly been a difficult period for the company’s investors. Looking ahead, more volatility could be present due to the uncertainty regarding the oil price. However, with the company performing well from an operational standpoint, it could produce high capital returns. That’s especially the case since it trades on a price-to-earnings growth (PEG) ratio of just 0.1. This suggests a wide margin of safety is currently on offer.

Encouraging outlook

Also posting significant losses for investors in the last three months has been pharmaceutical company Shire (LSE: SHP). Its news flow has been somewhat disappointing and management changes seem to have affected investor sentiment to at least some degree. In the short run, there is the potential for further volatility in the company’s share price. However, in the long run its tie-up with Baxalta could lead to a more profitable business which is worthy of a considerably higher valuation.

Next year, Shire is forecast to report a rise in its bottom line of 9%. Since it trades on a price-to-earnings (P/E) ratio of just 9.8, this means it has a price-to-earnings growth (PEG) ratio of only 1.1. As such, there is obvious scope for an upward re-rating. Given the strength of its pipeline and the potential synergies from the recent merger, its overall outlook is relatively positive. Within an industry which may become more important among investors due to its low positive correlation to the wider economy, now could be the perfect time to buy Shire.

The post 2 bargain recovery stocks that could make you brilliantly rich appeared first on The Twelfth Magpie.

More reading

• 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?
• 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 of the shares mentioned. The Motley Fool UK has recommended Shire. 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

Life’s a gas

Kazakhstan-focused multi-field oil and gas company Nostrum Oil & Gas (LSE: NOG) has hit the highs lately. Like other companies in the sector, it was given a lift by the OPEC and non-OPEC production cuts at the end of last year, but unlike many of them, it has held onto its gains even as oil has slipped back to around $50 a barrel.

Nostrum’s Q1 results, published last month showed revenues leaping 51% from $73.9m to $111.9m year-on-year, the strongest in more than 12 months, with net operating cash flows soaring from $27m to $69.8m. That partly explains its successful share price showing, as does rising production, a slight dip in net debt to $841.3m and a 21.5% improvement in its closing cash position to $122.8m. 

The $50 question

It isn’t hard to see Nostrum’s appeal to investors: operating costs of less than $4 per barrel give it handsome margins. Management is nonetheless determined to keep the lid on operating costs to brace against sub-$50 a barrel oil, putting it in a much stronger position than many oil stocks.

The outlook seems promising, with its KazTransOil (KTO) pipeline connection set to complete and analysts predicting revenues of £372m this year, rising to £578m in 2018. If correct, earnings per share (EPS) could rise a whopping 257% next year. Forecasters expect its valuation to fall from 34.8 times earnings to just 9.8 times. I am wary of oil stocks at the moment, amid signs that OPEC members are starting to cheat on production cuts, but Nostrum looks like an honourable exception.

Indivior-ism

Speciality pharmaceuticals business Indivior (LSE: INDV) is also up 60% over the past year, although share price growth has slowed in recent months. The £2.33bn company specialises in addiction treatment, where it has 20 years of experience, and investors have been attracted by its strong market position and product pipeline.

However, the company has run into controversy, with 35 US states filing a joint civil complaint over its conduct with its heroin replacement Suboxone product, after it allegedly switched treatment from tablet to film formulation to block the introduction of generic alternatives. It incurred a $220m litigation charge in Q3 that knocked pre-tax profit from $258m to $98m, dampening share price growth.

Film star

Indivior nonetheless expects full-year 2017 net revenues of between $1.05bn and $1.08bn, buoyed by a rapidly rising treatment market and strong product pipeline. Q1 results show a solid business with resilient sales of Suboxone film, and net revenue rising 3% to $265m.

Management is in talks with the Department of Justice about a possible resolution to its litigation investigation and is also awaiting the outcome of patent challenge trials with Dr Reddy’s, Actavis and Par. It otherwise looks healthy with operating profit up 27% to $128m and net cash of $182m. I expect Indivior’s recent share price sogginess to continue as litigation threats drag on and forecasters predict EPS will drop 8% this year, then rebound 5% in 2018, but the long-term looks more promising.

The post These 2 FTSE 250 flyers are up 60% in just 12 months appeared first on The Twelfth Magpie.

More reading

• 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?
• 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?

Harvey Jones 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.

Stuck in a hole?

Another day, another day of extreme stock price volatility over at Lonmin (LSE: LMI). The platinum explorer was last 13% higher from Tuesday’s close following another leap in commodity values.

Lonmin has been particularly responsive to changes in broader investor sentiment in recent weeks. The company saw its share price treble in less than a month, topping out at 188p earlier in March, but a stalling commodity rally since then has seen Lonmin surrender much of these gains.

Of course investors can make a handsome profit if they time their share purchases right. But they can also be left nursing vast losses should they jump in at the wrong time.

And I believe anyone ploughing into Lonmin at the present time is in danger of suffering a severe headache. The platinum market’s chronic worsening supply balance leaves the stock at the mercy of a severe share price correction.

The economic cool-down in China continues to cast a shadow over total platinum consumption in the near-term and beyond, while swathes of recycled material entering the market causes further room for concern. Indeed, the World Platinum Investment Council expects the metal’s deficit to shrink to 135,000 ounces in 2016 from 380,000 ounces last year.

As a consequence the City does not expect Lonmin to break its run of losses until the year-to-September 2017 at the earliest, with expected earnings of 1.6 US cents per share leaving the company dealing on a huge P/E ratio of 34.9 times.

This earnings multiple sails comfortably outside the benchmark of 10 times or below, a figure that indicates stocks with extremely-high risk profiles like Lonmin.

With this in mind, I believe the commodities giant has plenty of room to fall.

Dicey drillers

A weaker US dollar has also helped resources prices gain ground in Wednesday business, helping many producers like Premier Oil (LSE: PMO) gain ground — indeed, the business was last dealing 14% higher from last night’s close as Brent moved back towards the $40 per barrel marker.

This rise was not enough to stop Nostrum Oil & Gas (LSE: NOG) losing ground, however, the company last dealing 7% lower following a disappointing trading update.

Nostrum advised that revenues fell 43% during 2015 to $449m, a result that drove sent pre-tax profit shuttling 77% lower to $72m.

The business has vowed to keep reducing operating costs in “the new oil price environment,” however, while Nostrum also expects to maintain production above the 40,000-barrel-per-day marker. Output during 2015 came in at 40,391 barrels per day.

But I believe that Nostrum is likely to remain under severe pressure as a lack of co-ordinated supply cuts from the world’s major producers, combined with stagnating demand growth, weighs on the oil industry. As such, I believe the fossil fuel specialist — along with Premier Oil — remains a risk too far at the present time.

The post Is Now The Time To Buy Lonmin Plc, Nostrum Oil & Gas PLC & Premier Oil PLC? appeared first on The Twelfth Magpie.

More reading

• 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?
• 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?

Royston Wild 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.