The UK economy looks fragile at the moment. With the energy crisis driving inflation to historic highs and the pound falling, analysts expect the recovery to be sluggish and difficult. UK shares have been widely affected too, putting investors on high alert. 

Conversely, few sectors are currently witnessing a boom. But those companies that have continued to show strong growth are now receiving investor interest. I think this is the perfect time for me to diversify and pick up quality stocks on the way up. 

Shares that are defying trends

While the FTSE 100 is down over 6% this year, two overlooked gems on my watchlist have risen over 40% in three months. But looking at the fundamentals, they still look cheap. Let’s dive in. 

The energy sector is red hot right now. Despite the renewable energy push, oil is expected to power a majority of our industries for the foreseeable future. 

UK’s largest independent oil and gas business is Harbour Energy (LSE:HBR) and it has benefited greatly from this. Its shares are up over 41% in the last three months thanks to surging profits. 

In the first half (H1) of 2022, the company saw a 12-fold increase in pre-tax profits to US$1.49bn compared to $120m in H1 2021. The company cut down its net debt by 50% to $1.1bn and increased its 2022 shareholder payouts to $500m. 

Harbour Energy shares are trading at 448p with a price-to-earnings (P/E) ratio of 4.5 times. Given the current yield of 2.13%, which is expected to increase moving forward, this looks to me like a bargain. 

The next UK share on my list has jumped 47% over the last three months. 4imprint Group (LSE: FOUR) is a merchandise manufacturer that operates primarily in the US and controls 4% of the $23.6bn promotional products market.

The firm specialises in designing and manufacturing products that are functional adverts for large companies. 

In H1 2022, operating revenue was $515.54m, up 58% from H1 2021. Operating profits jumped a whopping 1124% to $43.98m primarily because of streamlined marketing and better pricing. 

4imprint doubled its new customer acquisitions and its order book grew 44% to 886,000 in 2022. The board is confident that the revenue target of $1bn will be achieved in 2022.

Its shares are currently trading at 3,645p at a P/E ratio of 20.9 times. Although this is not cheap on paper, I think its revenue growth in 2022 makes it a bargain. Many blue-chip businesses have struggled over the last few months, but 4imprint has shown considerable growth in a highly contested US market. 

Concerns and verdict

Tax cuts will plague oil companies moving forward. The world’s five biggest oil companies saw profits increasing by £50bn between April and June. This prompted a 25% energy profits levy in the UK that will bring the total tax on oil companies to 65%. 

Also, many US businesses are freezing hiring to improve margins. This is indicative of a slowing economy that could affect marketing spend. 

However, both businesses discussed here have reinvested smartly and have stronger balance sheets heading towards 2023. While there could be a slowdown, I think these shares have a lot of growth potential right now. I’ll probably make a lump sum investment in both shares when signs of market recovery become stronger. 

The post Up 40%+ in 3 months! These 2 fast-growing UK shares still look cheap appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan 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.

Despite the rise, the current price of 1.3p remains a long way below its highs of over 8p this time two years ago. What’s behind the market’s rekindled enthusiasm for the stock? And could now be the time to jump aboard for a new run-up to the old highs and perhaps beyond?

Good news

It’s been just over five years since drilling commenced at Horse Hill — a test well (HH-1) that produced high initial flow rates and was dubbed the ‘Gatwick Gusher’. However, while there’s been some ad hoc revenue from further testing, a permanent producing well has yet to be established.

The revenues from such production are important because, since the Gatwick Gusher was first drilled, UKOG has been raising cash — and burning through it at a rate of knots. Up to the end of 31 March this year, it had raised a total of £41m and burnt through £34.7m.

Investors have had their pips well and truly squeaked, with the company having issued 4.7bn new shares over the period, taking the number of shares in issue from 1.3bn to 6bn. And there’s been further fundraisings (and cash burn) since 31 March. Shares in issue are up to 6.4bn at the latest count.

The good news — and the reason I think market excitement about the stock has been reignited — is that a permanent production well finally appears to be within touching distance. On 12 September, the company announced a rig is scheduled to arrive by the end of the month to drill “the much anticipated HH-2/2z Portland horizontal well, a key step towards establishing significant long-term production and cash flow from Horse Hill by the end of the year.”

Hothouse stock

When I say market excitement about the stock has been reignited, you need to understand what the market for UKOG stock is. Like a lot of loss-making AIM-listed oilers, there are no institutional investors among the company’s major shareholders.

Price action is driven entirely by retail investors, some of whom are in for the long haul. But many hop from oil stock to oil stock as company news and sentiment waxes and wanes, or are speculative day traders, following wherever there’s volume and momentum, and adding to it.

In this hothouse environment, share prices — and the valuations of the companies — can move out of all proportion to the underlying fundamentals of the business, which is what investors should be focused on.

Fundamentals

It’s looking like the Portland producing well is finally going to happen, having been originally scheduled for late 2018/early 2019. While the cash flow will be welcome, there’ll still be a need for further dilutive fundraisings to develop the field, even in the best case targeted rate of production, which there’s no guarantee will be achieved.

Furthermore, UKOG has yet to publish a promised updated independent Competent Persons Report (CPR) with recoverable reserves and net present values of cash flows associated with the envisaged field development. Based on the existing CPR, I think the company’s £83m market valuation is much too high. As such, I’m avoiding the stock at this stage.

The post The UKOG share price is flying. Time to buy? appeared first on The Twelfth Magpie.

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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.

Is the market regaining faith in the prospects of this AIM-listed company, whose flagship asset is the ‘Gatwick Gusher’ at Horse Hill? Furthermore, with the shares having previously traded north of 8p in more optimistic times, could the current price of 1.1p represent a brilliant opportunity to buy?

Increased stake

The recent share-price action follows an announcement from the company on 7 August that it’s acquiring a significant further interest in Horse Hill. As already noted, the shares closed at a new low on that date. So investors appear to have quickly moved to a more positive view.

UKOG has agreed to buy Tellurian-owned Magellan Petroleum’s 35% interest in Horse Hill for a total consideration of £12m — £5m in cash and £7m in UKOG shares. This will take its stake in the Gatwick Gusher from 50.6% to 85.6%. There are some obvious positives to this, notably a significant increase in the proportion of future Horse Hill revenues to which it will be entitled.

Dilution

However, it’s not all good news. UKOG’s had to take out a convertible loan of £5.5m. This is because while its increased stake in Horse Hill will give it a much higher proportion of future revenues, it has to bear a much higher proportion of the costs to develop the field.

The result of the acquisition and loan is that there’s a potential £12.5m worth of new shares to be issued. Exactly how dilutive this will be for existing shareholders remains to be seen, but history tells us to expect the worst.

UKOG previously took on a £10m loan from the same providers. Its share price was 4.9p the day before the loan was announced on 15 November 2017. The price began to fall as the lender began converting and selling its shares, ending at 2.3p by the time of the last conversion eight months later.

UKOG’s history as a serial diluter is chastening. When it first acquired an interest in Horse Hill over five years ago, it had 853,396,843 shares in issue. Today, there are 6,083,289,907. Put another way, 853,396,843 shares that once represented 100% ownership of the company now represent just 14%.

Unswayed

Since the Gatwick Gusher first gushed, news on flows from the Kimmeridge level (once routinely described by the company as “North Sea-like”) has not been very good. Indeed, UKOG has abandoned plans to drill a horizontal well in the Horse Hill Kimmeridge in the immediate future, in favour of bringing the smaller conventional Portland level into production.

Tellurian’s sale of its 35% stake in Horse Hill for £12m, gives an implied total value for the asset of £34.3m. In turn, this suggests UKOG’s 85.6% stake is worth £29.4m. This compares with the company’s market capitalisation of £66.9m at the current share price and with the current number of shares in issue.

How much further dilution is to come before UKOG’s funded by its own cash flows (if it ever is) is anybody’s guess. As such, the recent mini-rally in its share price doesn’t sway me. It’s a stock I’m continuing to avoid.

The post Should I buy UKOG shares? appeared first on The Twelfth Magpie.

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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.

Back in 2016, its flagship Horse Hill well flowed oil from the shallow conventional Portland level but, more excitingly, from the deeper Kimmeridge layers. High initial rates were recorded over only a few hours. But it was enough for the well to be dubbed the Gatwick Gusher, and the company to talk of 100bn-barrel potential in the Kimmeridge across the wider Weald Basin.

UKOG’s shares climbed to over 8p at the height of investor excitement, but closed yesterday at 0.975p. Could they now be the bargain of the decade?

‘Fault-zone’ critics

From the outset, critics claimed UKOG had drilled into a fault zone at Horse Hill. They suggested it had tapped a relatively small Kimmeridge oil pool — a quirk of the local geology — and that the high initial flow rate would decline rapidly. Furthermore, that extrapolating from Horse Hill to the rest of the Weald was nonsense.

Attempts to replicate another Horse Hill

Between May 2017 and March 2018, UKOG tested its well at Broadford Bridge — around 20 miles southwest of Horse Hill — where it said the Kimmeridge was “a mirror image geological look-alike” to the Gatwick Gusher. Broadford Bridge didn’t gush. Indeed, it did nothing much at all.

Furthermore another Weald oiler, Angus Energy, testing at Brockham six miles northwest of Horse Hill, announced just 11 days ago that “it is extremely unlikely that commercial hydrocarbon flow can be established from the Kimmeridge layer at Brockham.”

Return to Horse Hill

After the Broadford Bridge disappointment, UKOG returned to Horse Hill last June to conduct an extended well test (EWT) with a view to bringing both the Portland and Kimmeridge into production.

By October, the Portland EWT had been “successfully completed” and the company moved on to the Kimmeridge. However, in February, it announced the Kimmeridge had been shut-in to conduct a “long-term pressure build up test,” the outcome of which we don’t yet know.

Even more disconcerting, UKOG announced in its recent half-year report (on the same day as Angus Energy’s disappointing Brockham Kimmeridge news), the Horse Hill Kimmeridge development has been put on hold.

UKOG said it remains “very positive on the future commercial potential of Kimmeridge,” but that “for risk mitigation purposes” development will “likely” (no promises, mind), “follow the start of full-scale Portland production from Horse Hill.”

In addition, it announced it no longer intended to produce an updated 2018 Competent Persons Report, which it had promised would detail “recoverable reserves and net present values of cash flows associated with the envisaged Portland oil field development.”

Bargain of the decade?

In view of all the above, together with a poor record of meeting operational timetables and constant share issues to raise new cash, I think it would be generous to value UKOG at anything above its tangible net asset value (TNAV).

At the latest period end (31 March), TNAV stood at £33.6m, with 5.7bn shares in issue, giving TNAV per share of 0.59p. As such, I think the current share price of 0.975p — a 65% premium to TNAV — is far from a bargain at all, let alone the bargain of the decade. It’s a stock to avoid for me.

The post Could UKOG shares be the bargain of the decade? appeared first on The Twelfth Magpie.

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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.

The company’s developing conventional assets (currently the Portland level at Horse Hill) that could enable it to become a small and modestly profitable producer. But, in parallel, it’s throwing considerable cash and resources at the potentially richer — but far more problematic — Kimmeridge levels. (Q. Is this the best strategy for a loss-making company, with currently next to no permanent production?)

UKOG has claimed the Kimmeridge is a discovery of “national significance” and a “world class potential resource.” (The numbers bandied about are equivalent to the proven reserves of Iran.) Yet no large oil company has competed for the licence interests that numerous small players have been happily selling to UKOG for a relative pittance. (Q. Has the company, as some experts claim, exaggerated the potential?)

UKOG has had multiple dilutive share placings, in some of which “institutional” investors participated. Yet no institution has appeared as a major shareholder. (Q. Have institutional investors no faith in the company but been happy to turn a quick buck by forward-selling discounted placing shares to unworldly retail punters?)

UKOG chief executive Stephen Sanderson has trumpeted the company as grossly undervalued, even when the share price was significantly higher than the current 1.125p (£68m market cap). Yet in four-and-a-half years, he hasn’t bought a single share or exercised a single option. (Q. Is Sanderson, who draws a generous cash salary — £275,000 last year — fully aligned with the interests of shareholders?)

Portland and Kimmeridge progress

I last wrote about UKOG in December. Have developments in 2019 gone any way towards resolving any of the above conundrums?

Last autumn, UKOG announced that an Extended Well Test (EWT) for the Portland level of the HH-1 well had been “successfully completed,” and that the Competent Persons Report (CPR) “will be updated to include recoverable reserves and net present values of cash flows associated with the envisaged Portland oil field development.”

The CPR is important, because UKOG might be able to raise conventional borrowings against the Portland asset (reducing the need for more dilutive share placings). However, an updated CPR has yet to appear.

Meanwhile, I wasn’t impressed by the flow news coming from the EWT programme for the Kimmeridge level. Or by a surprise announcement in February that it had been shut-in for a long-term pressure build-up test. Comparable geological formations have typically displayed extremely steep decline rates, so the jury’s still very much out on the Kimmeridge.

Other news

UKOG’s continued to acquire interests in Weald Basin licences. Still at low prices, and still with no one else apparently interested in this “world class potential resource.” It’s funded these acquisitions largely by issuing more shares, despite having raised £2m in one of last year’s placings specifically for “consolidating and expanding its asset base in the Weald Basin.”

And we’ve had another placing already this year (£3.5m). Bizarrely, to my mind, given how stretched the company is, this is to pursue “new opportunities, both in the UK onshore and elsewhere.”

Finally, CEO Sanderson still owns no shares, and no institutional investor graces the register of major shareholders. UKOG remains a stock to avoid, in my view.

The post Is the UKOG share price now a bargain? appeared first on The Twelfth Magpie.

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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.

With so little proved reserves (just 39,000 barrels net to UKOG), I think a useful starting point for considering the valuation of the company is the price it has paid for its various assets. Or, put another way, the price at which knowledgeable trade parties have been happy to sell.

The table below summarises UKOG’s current interests and the valuations I’ve assigned to them. Following the table, I discuss the trade deals from which the valuations are derived, before going on to consider whether the company’s shares offer good value at their current level.

(1), (2) UKOG announced its acquisition of interests in the Horndean, Avington and Markwell’s Wood licences on 24 July 2014. It paid £1.3m. I assign this value to its 10% interest in Horndean and 5% interest in Avington. These are currently UKOG’s only production assets, albeit Avington is temporarily shut in, with it believed an oil price of over £90 a barrel is needed to give confidence economic production could be restarted. I assign no value to exploration site Markwell’s Wood. Interests in the Markwell’s Wood licence have only ever changed hands for a nominal sum (e.g. £1). Furthermore, UKOG said this week that the future of Markwell’s Wood is “under internal review,” although an oil news website reported last month that the company has already informed local residents it’s abandoning the site.

(3) It has done a number of deals that have increased its interest in the Horse Hill licences to 46.735%. The latest of these was announced on 30 August this year and values its interest at £21.6m.

(4) The company announced its acquisition of a 100% interest in the Broadford Bridge licence for £3.5m on 13 June 2016. A minority interest in an offshore licence was included in the deal but I attribute the full value to Broadford Bridge. Interests in the offshore licence only ever changed hands for a nominal sum and UKOG subsequently allowed it to lapse.

(5) UKOG built its 40% interest in the Holmwood licence via three deals. The latest of these was announced on 25 September 2017 and values its interest at £3m.

(6) It has done a number of deals that have increased its interest in the Isle of Wight licence to 95%. The latest of these was announced on Wednesday this week and values UKOG’s interest at £1.1m.

Valuation

UKOG has been a willing buyer, and numerous trade parties have been willing sellers, of assets totalling £30.5m, which equates to 0.55p a share. How does this compare with its current market valuation? Well, the market cap is £74m at yesterday’s closing share price of 1.325p.

It does have prospects of adding to its proved oil reserves, with an extended well test in progress at Horse Hill. However, it remains a highly speculative proposition. I might consider it at nearer 0.55p but at 1.325p, I’m happy to avoid.

The post Why I think the UKOG share price could be worth just 0.55p appeared first on The Twelfth Magpie.

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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.

How do you approach stocks like UK Oil & Gas (LSE: UKOG) and Sirius Minerals (LSE: SXX)? Both are ground-breaking operations that have excited British investors like few others in recent years, and disappointed them in equal measure. They remain high-risk, high-reward stocks today.

Drill, baby drill

Right now, both are in the doldrums. These are long-term projects that were always going to hit hurdles, and the going has been slow lately. However, as I have previously suggested, the time to buy stocks like these is when they are down rather than when they are up. So do I think now could be the right time?

Today, you can buy shares in UK Oil & Gas for 1.60p each, well down on their 52-week high of 4.68p. Similarly, you can buy Sirius at 22.62p, well down from its year high of 39.78p. At least you’re not getting swept up in some short-lived, sentiment-fuelled spike.

Breaking new ground

Both companies are potentially massive. AIM-listed UK Oil & Gas is aiming to develop an onshore portfolio of eight exploration, appraisal, development and production assets. Sirius owns the largest and highest-grade deposit of polyhalite fertiliser in the world, and is now listed on the main market.

UK Oil & Gas is the more controversial. It owns Broadford Bridge in West Sussex and is a leading investor at Horse Hill, dubbed the ‘Gatwick Gusher’. But anti-fracking activists are warning local residents that its operations will pollute the air, poison the land, cause cancer and industrialise the countryside.

Going underground

The group has now won an injunction against the activists, but the campaign will no doubt continue. Sirius has more goodwill, having secured its planning permissions, but faces other challenges.

It has to fund a 23-mile tunnel to transport facilities in Teeside, the second longest in the UK, only three miles shorter than Crossrail, and deeper than the Eiffel Tower. Although digging began in June, investors grew nervous when management lifted its stage 2 capital funding requirement, from $3bn to between $3.4bn and $3.6bn in September. That sparked fears of further equity fundraising, which will dilute existing stock.

Long-term view

Many investors are standing clear until they know what that means in practice. Although Sirius is aiming to deliver 10m tonnes of potash a year, the money won’t arrive in until 2022 at the earliest. The tunnel is designed to last for 100 years, so this is only for very long-term investors. I hold stocks in Sirius and will continue to do so. The rewards will be a long time coming, but I believe they will eventually flow.

As Rupert Hargreaves points out here, UK Oil & Gas has made tremendous progress lately, after declaring its Horse Hill oil field commercially viable following an extended well test. He also warned it’s running dangerously low on cash and is reliant on placings to raise funds, again, diluting existing shareholders. 

With no revenues likely until the end of 2019, expect a tense year ahead. If you haven’t bought, yet further dilution could offer a buying opportunity – but a risky one.

The post Is now the perfect time to buy the UKOG and the SXX share price? 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?

harveyj owns shares in Sirius Minerals but has no position in any other stocks 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 want to explain why I’m concerned about the outlook for UKOG shareholders. I’ll also consider another oil stock which I believe could beat the market over the next few years.

These numbers worry me

UKOG recently published the results of short-term flow tests from its Portland oil discovery. The HH-1 well flowed 401 barrels of oil per day (bopd) over a six-hour period and 414 bopd over a two-hour period.

However, the company warned that these flow rates “are not the long-term sustainable flow rates that will be utilised to assess the Portland’s commercial viability”.

Those long-term tests are still ongoing. But to be honest, I don’t understand why UKOG published the results of the short-term ones. In my view, they suggest that longer-term flow rates are likely to disappoint shareholders.

Positive cash flow?

The company hopes to generate positive cash flow in 2019. The key challenge it faces is to convert some of the group’s 13.2m barrels of discovered resources into commercial reserves. The drilling and testing operations required to attempt this are not expected to complete until the end of 2019.

In my view this is a risky situation. I’m not encouraged by the evidence so far and would prefer to invest in a company with proven reserves and production.

This stock could double

One possible choice in this sector is North Sea operator Enquest (LSE: ENQ). During the six months to 30 June, production rose by 46% to 53,990 barrels of oil equivalent per day (boepd). This increase was mainly due to the ramp up of production from the firm’s flagship Kraken field.

Higher oil prices and higher production lifted revenue for the first half by 86% to $548m. Operating profit for the period tripled to $105.2m.

The company also announced a deal to acquire a further 75% of the Magnus oil field from BP. Enquest’s debt-laden state means that this will have to be funded by shareholders, so today the firm launched a rights issue to raise $138m (£107m).

Good and bad news

The Magnus deal should add 60m barrels of reserves to Enquest’s assets, which the firm says will have a net present value of $500m. Expanding its ownership of Magnus should also deliver meaningful increases to production and cash flow.

However, the rights issue shares are being sold at 21p each, which is a 45% discount to yesterday’s closing price of 39p. Enquest’s share price is 13% lower at the time of writing, in response to this news.

The problem is the firm’s massive net debt, which was down $18m but was still at a hefty $1,973m at the end of June. To put this in context, analysts’ forecasts suggest that full-year profits for 2019 will be $239m.

I think shareholders face the risk that the company will be run only for the benefit of its lenders. But cash generated from operations rose by 132% to $318m during the first half. If this trend continues, debt could soon start to fall.

The stock currently trades on just 2.3 times forecast earnings for 2019. If debt starts to fall, I believe the shares could easily double from current levels.

The post Are you tempted by the UKOG share price? Here’s what I’d buy instead 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?

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.

Speculation-driven volatility

Just look at the share price action. The stock was around 1p in June 2017, more than 8p by September that year, flirting with 1p again in June, and around 2.28p today. If you’d bought the shares somewhere close to 8p you’d be sitting on a nasty loss. If you’d bought near a penny, you’d have doubled your money. If you’d bought at a penny and sold at 8p you’d be laughing. But to do that would have required a trader mindset rather than the long-term approach of the average investor.

I reckon such movements are driven in the first place by company news flow, but exaggerated enormously by investor speculation. Meanwhile, a longer holding period leaves investors exposed to the firm’s potential upside and to its potential risks, which are many. My Foolish colleague Rupert Hargreaves recently punched out an article describing how UKOG is finding it difficult to get oil out of the ground and how the firm has been diluting its investors by raising funds to keep trading. Maybe oil will flow in commercial quantities in the end and cash will find its way into UKOG’s coffers. But will it come in time for those owning the shares now to benefit? That’s a question impossible to answer.

Well-balanced, profitable growth

So, I’d forget about UKOG altogether and go for a profitable, growing company such as Anpario (LSE: ANP). The firm has nothing whatever to do with oil exploration, which I see as a good thing. Instead, it earns its living as a producer and distributor of natural feed additives for animal health, hygiene and nutrition.

Trading figures in today’s half-year report look decent with constant currency exchange rate revenue coming in 5% higher than the equivalent period a year ago, while diluted earnings per share moved 14% higher. The directors seem confident in the outlook because they pushed up the interim dividend 10%. Chairman Peter Lawrence told us in the report that Anpario’s business development strategy will “progressively improve sales and distribution, while control of costs will ensure that they do not move ahead of the growth we achieve.” 

One of the things I like is the £12.6m cash pile sitting on the balance sheet, and the absence of any borrowings. On top of that, the firm’s record of cash generation from operations is excellent – steady, rising, and robustly supporting earnings. The share price has doubled since the middle of 2016, which challenges the performance of speculative outfits such as UKOG, but with far less ‘excitement’.

Looking forward, City analysts following the firm predict advances in earnings for 2018 and 2019 of around 10% each year. I reckon the balanced nature of this growth — which is likely to be backed with solid cash inflow — is well worth going for. I rate the shares as ‘attractive’. 

The post Forget the UKOG share price, I’d buy into this profitable small-cap instead appeared first on The Twelfth Magpie.

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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.

An extended well test is now in progress at Horse Hill. Some dedicated shareholders seem to virtually live by the site and have been tweeting about tanker movements and pump-stroke rates at the wellhead. Is UKOG on the brink of declaring commerciality and is its share price primed to rocket?

Portland

Testing is currently focused on the Portland Sandstone level, which flowed 323 barrels of oil per day (bopd) for 8.5 hours in 2016. Higher rates have been recorded over shorter periods during the current testing, but investors are awaiting news of a lengthy stabilised flow test. This seems to be in progress, based on the observations of the Twitterati.

A Portland well at nearby Brockham has been a marginal producer for many years. In its peak year (2005) it averaged 98 bopd. While Horse Hill may prove higher, UKOG’s interest in the licence is only 37%, so I view the value of the Horse Hill Portland in isolation as only a fraction of the company’s current market cap of £122m at a share price of 2.3p.

Kimmeridge

I’d say much of the current market cap reflects hope value for the Kimmeridge Limestone (KL) levels. In 2016, KL3 flowed 464 bopd (for 7.5 hours) and KL4 flowed 901 bopd (for four hours). A lengthy stabilised flow test of these levels will follow that of the Portland.

Between the 2016 initial tests and the current extended tests, UKOG shifted attention to its 100%-owned Broadford Bridge well — described by the company as a geological lookalike to Horse Hill, where it hoped to replicate the Gatwick Gusher. Unfortunately, despite many months of trying, it was unable to get oil to flow from any of Broadford Bridge’s six Kimmeridge horizons, which is why the focus has shifted back to Horse Hill.

As well as the disappointment at Broadford Bridge, there are a couple of other reality checks I note about the Kimmeridge. First, cutting through a much-touted 100bn+ barrels of oil in place across the Weald is a statement by UKOG boss Stephen Sanderson in a recent podcast with Vox Markets (20 July at 12 mins, 30 secs): “We think that we have 100 million barrel net reserve potential to UKOG over the coming years, if it all pans out” (my emphasis).

Mr Sanderson has also spoken in the past about how flow from Kimmeridge-type deposits can generally decline 60%-70% over a year, meaning you have to drill a lot of wells almost back to back to maintain a certain level of production. I’d say this industrialised process could be problematic in the Weald basin, as well as requiring relatively high capital investment.

Price and value

I’m expecting the Portland to be declared commercial and because the company’s shareholder base is largely small retail investors, the share price could spike higher on sentiment and momentum trading. However, I believe UKOG’s current valuation is too rich on a fundamental basis as things currently stand. Like the institutional investors who are noticeable by their absence from the company’s list of major shareholders, I’m avoiding the stock for the time being.

The post Is the UKOG share price primed to rocket? 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?

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.