BP is in good company. FTSE 100 oil major, Royal Dutch Shell is also hurting. Its shares are down 38% from its 2020 high. Meanwhile, stocks of smaller peers Tullow Oil and Premier Oil have plummeted 63% and 75% respectively.

The oil price crash was initially caused by the coronavirus-induced slow down in demand for oil. But this happened at the same time as its oversupply. And with OPEC+ refusing to cut production, share prices in oil companies tanked further.

However, OPEC+ signed a US-backed deal on Sunday. The aim is to cut almost 10% of the global oil supply. The hope is this will be enough to raise oil prices, and with them, the shares of oil companies.

However, I am skeptical.

BP share price is helped by its diversity

BP is an integrated oil company. This means it operates in every aspect of the oil and gas business from oil exploration and production (E&P) to refining to trading. It also has a renewable energy division. Therefore, its share price represents the diversity of its operations. 

The oil majors can offset the now lower-margin E&P assets with cheaper oil feedstock into their refining businesses. They are also big oil traders, able to use the market to add value to their positions. Smaller peers based only in E&P are far more exposed to oil market volatility.

This higher exposure is mirrored in the size of their respective share price crashes. Indeed, the market appears to have already accounted for business model differences between oil firms.

OPEC cuts production by 9.7m barrels

Sunday’s deal means that OPEC is going to cut oil production up to 9.7m barrels per day. However, this reduction is from an already raised production level. Some traders doubt this will be enough to boost prices in the short term due to the oil glut.

With no end to the coronavirus pandemic in sight, oil demand is not likely to increase anytime soon. The main buyers of oil are likely to be G20 governments filling up strategic reserves with cheaper oil.

Besides, OPEC countries are likely to cut production of their heaviest crudes first. This is because they already sell for less than lighter grades. Refineries and markets in residuals fuels could see an increase in prices. This may help to steady BP’s share price slightly. But, it won’t likely have a huge effect on the rest of its businesses. 

With market-driven supply already down in the US, it could be that OPEC+ countries try to use this time to increase their market share. This means more cuts may be unlikely anytime soon. And some analysts already believe Sunday’s cuts are too little too late.

Once strategic storage reserves have been maxed out, the market will have to rebalance. And that will mean low oil –and share – prices for the future.  

The post Why I think the OPEC cuts may not be enough to save the BP share price appeared first on The Twelfth Magpie.

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Rachael FitzGerald-Finch holds shares in BP and Royal Dutch Shell. 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.

Brent higher

The Brent crude benchmark price is hovering just below $70 a barrel. The oil price spiked in the immediate aftermath of Suleimani’s assassination, with Brent rising 4.5% to $69.20 at one point.

It has since retreated slightly and now stands at $68.26. Some say oil could break through $100 and carry on climbing if the situation worsens.

Any escalation would certainly be bad in itself, and a resulting higher oil price may also be bad for the global economy. However, two London-listed explorers, Premier Oil (LSE: PMO) and Tullow Oil (LSE: TLW), might benefit from higher price for crude.

Premier Oil

Premier’s share price has been doing well lately, and jumped 14% yesterday. That had nothing to do with the U.S-Iran situation, though, but was rather a positive market reaction to the company’s trading and operations update. This reported 2019 production of 78,400 barrels of oil equivalent per day (kboepd), at the upper end of full-year guidance, underpinned by high operating efficiency and continued high rates from the Premier-operated Catcher Area. Separately, the firm announced the proposed acquisitions of the Andrew Area and Shearwater assets from BP for $625m.

The Premier share price has been volatile but is now up 40% in the last three months. However, I remain worried by its $1.99bn debt pile, which is set to grow even larger following the latest acquisition. Clearly, management couldn’t resist the opportunity, which is understandable, as the purchase should generate more than $1bn in free cash flow by the end of 2023. It does up the risk level, though.

Premier is on a roll but looking forwards, much depends on the oil price. Beware rushing in on bad news from the Middle East or a short-term price spike. If the current crisis abates, the demand for oil could slow. In addition, the pressure to use renewable fuels continues to grow, posing a long-term challenge.

Tullow Oil

In contrast to Premier, the Tullow Oil share price has had a desperate time lately, losing more than half its value in the last month alone.

Exactly 10 years ago it traded at 1139p; today you can pick it up for less than 58p. If you invested £1,000 then, you’d have just £50 or so today, give or take dividends. I am rarely tempted by companies that have taken this kind of beating, and investors had to swallow further disappointment this month, after Tullow said its Carapa-1 exploration well in offshore Guyana had less oil than pre-drilling estimates.

The real damage was done in December, though, when Tullow cut 2020 production forecasts, suspended its dividend and announced a string of senior manager exits. Worse, it is burdened with even more debt than Premier, $2.9bn at last count. A repeat of its 2017 fundraising cannot be ruled out, which would inflict further damage on the share price.

Some believe the market has overreacted, and Tullow looks incredibly cheap at today’s price, especially as it doesn’t face any debt maturities until 2021. I remain wary, though.

Even amid the current geopolitical climate, Premier and Tullow are only for the brave.

The post Should you buy Tullow or Premier Oil ahead of the next oil price shock? 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.

If you want to see just how bad things can get, take a look at Tullow Oil (LSE: TLW). 

The recent plunge in the company’s value – leaving it trading on a little under 70p as I type – is nothing compared to the long-term trend. Go back almost eight years, to March 2012, and the stock was trading at over 1,500p.

So, it’s now a bargain?

Not so fast. Tullow’s now in a very sticky spot for a number of reasons: production guidance has been slashed, the company is currently rudderless following the resignations of both its CEO and exploration director, and the balance sheet is still under severe pressure, suggesting a fresh bout of fundraising is likely. 

All companies experience problems. Indeed, I’d be willing to stick with a stock if there was reason to believe it might recover and pay dividends to compensate holders in the meantime. Unfortunately, the latter is no longer the case with Tullow as the dividend has now been cancelled. 

There may be talk of it now being a takeover target but this should never be the sole reason for taking a position in a business. I’m steering clear. 

Shorter’s heaven

Industry peer Premier Oil (LSE: PMO) is another energy stock I’m wary of, albeit for a slightly different reason.

As I’ve said many times before, it’s always worth keeping an eye on what short sellers are doing. For those new to the investing, these are traders that bet against a company’s share price.

Given the volatile nature of the industry, it’s not exactly surprising if a few oil stocks make the list of shorting favourites. Premier Oil, however, has recently shot to the top.

Some readers may be scratching their heads. As my Foolish colleague Rupert Hargreaves explained recently, recent production has been healthy, and investors have embraced the idea of asset disposals. On the face of it, Premier seems a different beast from Tullow.

Or is it? Like Tullow, the investment case of Premier makes sense when the price of black gold is sky-high but it’s less than ideal if it’s falling or stagnating. 

This explains why a fund based in Hong Kong – Asia Research and Capital Management – has taken a massive short position on the stock as a hedge on its own $380m holding of the company’s huge debt pile. This way, it has some protection if the oil price stays low until the debt becomes repayable.

The fact that ARCM has stated that this is normal practice may help to assuage concerns, but it’s not exactly a ringing endorsement of Premier’s position. Ask yourself: if professional investors feel the need to make such a massive bet against a company they already have an interest in, do its shares truly represent the best opportunity for retail investors to make money?

If you’re tempted by either Tullow or Premier, I think the message is simple: only put cash in that you can afford to lose. 

The post Tullow Oil isn’t the only stock I’m running a mile from appeared first on The Twelfth Magpie.

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Paul Summers 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.

Recovery under way

Over the past five years, I’ve been watching Premier closely as the firm has tried to pull itself back from the edge. It was touch and go for a while. However, it now looks as if the company has passed the worst, and is pulling itself out the other side.

During the first half of 2019, the company hit a production record, producing 84,100 barrels of oil equivalent per day (kboepd), up from 76.2 kboepd.

This healthy production, coupled with Premier’s low-cost base, generated $182m of free cash flow after capital spending during the first six months of 2019. Management used all of this money to reduce debt and strengthen the group’s balance sheet.

Net debt declined to $2.15bn at the end of June, down from $2.33bn at the end of 2018. The firm is looking to reduce net debt by between $250m and $350m for the full year.

As well as using cash from operations to reduce debt, Premier Oil is also looking to offload its share of the “world class” Zama prospect off the coast of Mexico. The firm owns a 15% interest in the Zama field, discovered in 2017. It is estimated to contain between 670m and 970m barrels of oil equivalent and could be worth as much as $430m according to the City.

Furthermore, Premier is looking to offload part of its 60% interest in the vast Sea Lion project off the Falkland Islands. Due to budget constraints, the company has not been able to develop this prospect since it was discovered in 2010. A price tag of $1.5bn is too much for Premier and its partners to handle at the moment. So, management is looking for other ways to raise the money. These include export credit funding from the UK government.

Falling debt

These two asset sales could help reduce Premier’s debt load dramatically. If it makes as much money as the city is expecting, the Zama sale could reduce Premier’s net debt by nearly 25% on its own.

And the more debt Premier can pay off, the brighter the firm’s prospects will become. Last year the company spent a staggering $271m on maintaining its borrowings, around 50% of operating profit. Reducing this outflow by just 50% would have a significant impact on the group’s bottom line.

Indeed, for 2018, Premier reported net income of $133m, reducing interest costs by 50% to $135m per annum, would double this figure — that’s without taking into account the company’s record production.

If management can eliminate the group’s debt, I do not think it is unreasonable to suggest that net income could double or triple from current levels thanks to lower interest cost.

In the best-case scenario, I reckon the share price could jump as much as 200% if everything else remains equal.

This could be an excellent opportunity for long-term, risk-tolerant investors to potentially double or triple their money.

The post I think the Premier Oil (PMO) share price could triple your money 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.

For the six months to the end of June 2019, Premier’s pre-tax profit jumped to $121m, from $98m in 2018. Production surged to 84.1 thousand barrels of oil equivalent per day (kboepd), a record for the business. 

More importantly, the company’s net debt fell from $2.33bn at the end of 2018, to $2.15bn at the end of June. 

This reduction in borrowing is particularly important. Premier has been struggling to get its borrowing under control for the past few years. At one point, there was a genuine chance that the business could collapse under the weight of its debt.

Look to the fundamentals

It seems to me that rather than concentrating on these positive developments, the market focused on the volatile oil price last month.

However, the fact that borrowing is now falling tells me Premier has put the worst behind it. The group generated free cash flow of $182m during the first half of 2019, and if it can repeat this during the second half, net debt will fall below $2bn.

Management has stated that the company is on track to reduce net debt by $300m with free cash flow alone this year. It looks as if the business is well on the way to meeting that target.

Rising earnings

The more debt Premier can pay down, the better the firm’s prospects will become. In the first six months of 2019, the company forked out a total of $219m in interest costs and other finance expenses. 

In comparison, pre-tax profit from operations was just $120m. To put it another way, these figures suggest that if Premier can halve its debt pile, pre-tax profit could double, assuming everything else remains unchanged. 

It will take a few years for Premier’s net debt to fall to $1bn with the company paying off $300m per year, but at least the business is heading in the right direction.

Further progress on debt reduction in the second half of this year and in 2020 will, in my opinion, only make the company more attractive as an investment. What’s more, as its balance sheet becomes stronger management can afford to reinvest more money back into operations to drive growth. 

Based on current City estimates, shares in Premier are currently dealing at a forward price-to-earnings of just 9.4. With earnings per share projected to jump by 34% in 2020, the stock is only going to get cheaper over the next few months, according to the City’s projections. Based on these numbers the stock is trading at a 2020 P/E of 7.

The bottom line

So overall, the Premier share price lost 2.5% in September, but after considering the company’s progress improving production and reducing debt, I think the market is spending too much time focusing on the volatile oil price and not enough time considering the stock’s improving underlying fundamentals.

For that reason, I think this might be an attractive investment for risk-tolerant investors.

The post Why the Premier Oil (PMO) share price fell 2.5% in September 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.

$300 oil?

If the low-level conflict with Iran intensifies, oil prices could still jump to “unimaginably high numbers that we haven’t seen in our lifetimes”, according to Saudi Arabia’s Crown Prince Mohammed bin Salman, but we aren’t there yet.

Falling oil prices are good news for motorists but bad news for independent oil and gas exploration and production groups such as Premier Oil (LSE: PMO) and Tullow Oil (LSE: TLW), whose share prices have been on a bumpy ride ever since oil peaked at $115 a barrel in June 2014.

Measured over five years, Premier’s stock is down a whopping 75%, while Tullow has slipped 60%. The last 12 months have been particularly tough, with their shares down 48% and 23% respectively. The stock market sell-off of the last week inflicted further misery, because when the global economy slows, energy demand slows with it.

On debt do we part

Premier is the smaller of the two, with a market cap of just £610m. Despite its falling share price, August’s interims were actually very good, with year-on-year earnings up 40% to $680m. Production, revenue, and debt reduction all beat forecasts, while free cash flow doubled to $182m year-on-year.

The big longstanding worry is net debt, which is shrinking only slightly, from $2.33bn on 31 December to $2.15bn at 30 June. That’s roughly three-and-half times the company’s market cap. That leaves the company vulnerable to a drop in the oil price and therefore revenues. Plans to sell its stake in the offshore Zama field in Mexico will help on that score, with Jefferies recently valuing it at $439m.

Premier would benefit from a higher oil price but I suspect it isn’t going to get it. The global economy looks vulnerable, all-out war with Iran unlikely, while US shale goes from strength to strength. Plus there is the growing threat from electric cars, and climate change campaigners. Even a valuation of 6.63 times earnings fails to tempt me.

African adventure

Tullow has also been hit by the plunging oil price, dropping out of the FTSE 100 in 2015. Today its net debt stands at $2.9bn, almost identical to its market cap of $2.86bn. That looks relatively benign when compared to Premier, with gearing of 1.8x and no near-term debt maturities, but it could also do with a higher oil price to work that down.

In July, the group posted first-half revenues of $872m, with gross profit of $527m and post-tax profit of $103m. Tax troubles in Uganda have weighed on the company, but Tullow enjoys “robust profits and free cash flow”, which stood at $181m in the first half. Its TEN well has hit mechanical issues, but its portfolio of low-cost West African production provides a solid base for growth, as well as reducing debt and unlike Premier, paying dividends to shareholders.

Tullow’s forecast yield is 3.1%, with cover of 2.4, while operating margins are a healthy 26.3%. Earnings are predicted to jump 202% this year, slashing the current P/E from more than 40 to a more reasonable forecast of 12.8. If I had to buy one of these stocks, it would be Tullow. However, you might find less worrisome opportunities elsewhere.

The post £1,000 to invest? Here’s one FTSE 250 stock I’d buy, and another I’d stay away from 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.

High energy

One tempting option is upstream explorer Premier Oil (LSE: PMO), whose share price has jumped 15% over the last month and that was before today’s positive trading and operations update, which showed first-half production up 11% to 84,100 barrels of oil equivalent a day (boepd) year-on-year.

The group is now on track to meet its previously increased full-year production guidance of 75,000 to 80,000 boepd, boosted by a significant upgrade to the gross resource estimate at its Zama operations in Mexico, while its planned Tolmount UK growth product is scheduled to produce its first gas by the end of 2020.

Debt down

The Premier Oil share price has been hit by concerns over its debt pile, but free cash flow generation of $180m over the last six months has allowed management to shrink this slightly to $2.15bn, with forecast full-year net debt reduction of more than $300m.

Chief executive Tony Durrant hailed “a strong first half”, and said he was particularly pleased with the continued high operating efficiency of its producing portfolio. It funded the cut in debt and “remains a top priority for the group”. He also reckoned its exploration portfolio offers “substantial upside exposure”.

Premier play

FTSE 250 listed Premier Oil has a global spread of operations across the North Sea, South East Asia, the Falkland Islands and Latin America, which include some exciting offshore prospects. As always, it remains at the mercy of the oil price, and needs to keep chiselling away at that debt, which is still more than three times its market cap of £661m.

The ride may be too bumpy for some investors even though Premier Oil stock is valued at a tempting 9.9 times forecast earnings. Others may be put off by the fact that there is no dividend, and prefer my other oil sector pick instead.

Right Royal dividend

In these uncertain times, it may feel safer to invest in vertically integrated FTSE 100 behemoth Royal Dutch Shell (LSE: RDSB), whose market cap of £207bn dwarfs Premier Oil. Its stock is up a solid 12% so far this year, broadly in line with the wider index.

Interestingly, while the FTSE 100 trades at around 18 times earnings, the Shell share price looks better value at just 12 times. It looks a more rewarding dividend prospect as well, yielding 5.7% against 4.3% across the index.

Sure of Shell

Shell doesn’t offer the one-stop-shop diversification of a FTSE 100 tracker, but the above comparison still makes it look irresistible. That said, earnings are forecast to fall by around 5% over the next year, and we know what a slowing global economy does to the oil price.

The dividend looks solid with the oil price comfortably above Shell’s break-even point, while management is aiming to buy back at least $25bn of its shares by the end of 2020. It could be ideal for a starter portfolio. I would say, buy this dividend hero first, and maybe stick Premier Oil on your watch list.

The post Investing £2,000 in a Stocks and Shares ISA? I’d consider these two stocks appeared first on The Twelfth Magpie.

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• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

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.

One reason for this is that oil prices have fallen sharply over the same period. But oil price aside, are there any other factors shareholders should be aware of? And are Premier shares still cheap?

I’ve been taking a closer look and will give my verdict below. I’ll also consider the investment case for another oil stock that looks cheap to me but offers limited visibility for shareholders.

Good progress

A trading update in May suggests that PMO boss Tony Durrant is continuing to deliver on his operational and financial targets.

Mr Durrant has increased production guidance for the year from 75k to 75k-80k barrels of oil equivalent per day (boepd). He also advised investors that if oil prices stayed the same, debt reduction would be at the top end of the firm’s $250m-$350m target for the year.

It was a solid update that didn’t raise any red flags for me.

Are the shares still cheap?

As I’ve written before, Premier shareholders need to remember that the firm’s valuation is still dominated by its enormous debt pile.

Net debt fell from $2.33bn to $2.25bn (about £1.75bn) during the first four months of 2018. But that still dwarfs the market value of the firm’s shares, which is about £685m.

What this means is that when valuing these shares, we need to look at the firm’s enterprise value (market cap + net debt) to get the full picture.

At the time of writing, Premier’s enterprise value was about £2.5bn. That’s about 7.5 times last year’s free cash flow, which looks pretty affordable. The equivalent figure for Tullow Oil is about 11, for Royal Dutch Shell it’s around 12. However, both of these larger companies pay dividends and benefit from stronger balance sheets than Premier.

In my view, Premier shares are probably fairly valued at current levels. As debt continues to fall I’d expect the shares to make further gains. But the share price will remain very sensitive to changes in the oil price, so shareholders may need to be prepared for a lively ride.

A true bargain?

One oil stock that’s failed to benefit from strong market conditions is Asia-focused SOCO International (LSE: SIA). This former favourite has continued to drift lower over the last year and now trades at just 66p. That’s a 33% discount to the stock’s net asset value, which I estimate at 99p per share.

Why is SOCO so cheap? Unlike Premier and Tullow, it has net cash and a track record of generous dividends — the stock currently has a forecast yield of 6.8%. Another plus is that founder and CEO Ed Story still has a 3.5% shareholding, suggesting his interests should be well aligned with those of shareholders.

I think one reason why this stock keeps drifting lower is that the market isn’t sure where this business is going. Its Vietnam assets remain cheap to run and cash generative. But we don’t yet have much information about the performance of Merlon, a recent acquisition in Egypt.

In my view, SOCO carries some risk. However, the company’s historical performance and its focus on cash generation suggest to me that the shares should probably be worth more. I’d rate the stock as a contrarian buy.

The post The Premier Oil share price: is now the time to buy? appeared first on The Twelfth Magpie.

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• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Roland Head owns shares of Royal Dutch Shell B. 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.

Oil plays

With a market-cap of £806m, FTSE 250-listed Premier Oil (LSE: PMO) is a minnow compared to FTSE 100 giant Royal Dutch Shell (LSE: RDSB), at a massive £214bn.

Smaller often means faster and nimbler though, and that’s certainly the case with Premier’s share price. It has been hitting the gas in recent weeks, rising 40% in three months, against less than 10% growth for Shell. Both stocks have been boosted by this year’s general stock market recovery, fuelled by hopes of a more dovish stance by the Federal Reserve.

Premier performance

Premier enjoyed a strong 2018 with higher production, positive free cash flow, and a return to profitability, turning a 2017 loss of $475.3m into a post-tax profit of $133.4m. It has also been restoring its balance sheet strength, cutting debt by $393m to $2.3bn by year end, a process it plans to continues this year.

It is also pumping out the cash, with flows of 64% to $777.2m last year, boosted by $73.4m of non-core asset disposals. In March, it netted $65.6m from the sale of its Pakistan business. Successful well tests at its Zama discovery in Mexico earlier this month has given it another boost.

Despite this promising trajectory, the stock still trades at just 9.4 times forecast earnings. It was as low as 4 or 5 times earnings before the recent surge, but Rupert Hargreaves reckons its share price could still double from here.

Naturally, you have to factor oil price volatility into this. I’d like to see Premier’s management continue its drive to cut debt to give it more of a cushion. But for now, all looks set fair.

I’m sure of Shell

Although the Shell share price is up by a third over the last three years, this is still primarily a dividend income play. It currently offers a forecast yield of 5.9%, with cover of 1.4, and management can stand tall after maintaining payouts through the recent downturn. Last year’s dividend was funded entirely in cash. Cash flows totalled a hefty $16.7bn in Q4. It’s also operating a $25bn share buyback programme, and has paid $4.5bn so far.

The oil price slump may have worked in Shell’s favour, making it meaner and leaner, and reducing its break-even oil price to $40 or below. That looks nice with Brent above $70, which should continue to boost earnings from its upstream segment.

Royal returns

Shell has also been paying down its borrowings, and at quite a rate, cutting net debt by a whopping $14.5bn to $51.4bn in 2018.

Despite this progress, it trades at just 11.2 times current earnings, against 17.18 for the FTSE 100 as a whole. Today, its shares trade at 2444p, but Rupert Hargreaves reckons they could be worth 3200p, which would represent a 30% uplift from here. However, the real glory is the dividend, which will continue to flow for years. Why wouldn’t you buy it?

The post £2k to invest? I’d buy the red-hot Premier Oil share price and Royal Dutch Shell appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. 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.

Therefore, could it be worth buying at the present time? Or, is another growth share that reported a positive trading update on Thursday more appealing for the long term?

Improving prospects

The company in question is home repairs and improvements business Homeserve (LSE: HSV). Its performance in the 2019 financial year has been encouraging, with its adjusted profit before tax expected to be at the upper end of market expectations.

In its Membership business, the company continues to grow strongly in the US, which helped to offset a decline in customer numbers in the UK. A group customer retention rate of 82% suggests that its performance has been relatively strong, with net income per customer continuing to rise.

In the company’s Home Experts division, revenue at Checkatrade increased by over 30%, while trades recruitment grew strongly. Consumer web visits increased, while a new management team could catalyse the performance of the division in the long run.

With Homeserve forecast to post a rise in its bottom line of 12% in the current year, it seems to have a bright future. However, with a price-to-earnings (P/E) ratio of 27, it appears to lack a margin of safety at the present time. Therefore, it may be a stock to avoid until such a time that it offers better value for money relative to the wider FTSE 250.

Low valuation

By contrast, the Premier Oil share price appears to offer excellent value for money. It trades on a P/E ratio of just 4, which suggests that investors are still unsure about its long-term financial prospects.

This, of course, is somewhat understandable. The company continues to have a relatively large amount of debt on its balance sheet, which means it may be a riskier proposition than some of its FTSE 100 and FTSE 250 sector peers. Although the oil price has moved significantly higher since the turn of the year, the industry’s outlook can quickly change as a result of poor economic data. Investors, therefore, may continue to price in a wide margin of safety over the medium term.

In response to what has been a difficult period pre-2019 for the oil price, Premier Oil has cut costs, increased production and started the process of reducing debt levels. Although there is still some way to go in this process, it is nevertheless making encouraging progress according to recent updates released by the company. They show that its cash flow is moving higher, while net debt is moving lower.

While the company may be risky relative to the wider FTSE 250, it could offer high rewards over the long run as a result of its low valuation. For less risk-averse investors, it may be an appealing investment opportunity.

The post Is the Premier Oil share price the best-value stock in the FTSE 250? appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Homeserve. 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.