Derek Pain: After the Nighthawk debacle, I am looking for fresh recruits

No Pain, No Gain
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The Independent Online

The departure of Nighthawk Energy from the No Pain, No Gain portfolio has initiated a search for at least one, possibly two, recruits. My little share exercise is now down to 14 constituents, most showing gains. It was not my intention to hunt for newcomers at present. I took the view that the portfolio had settled down, but Nighthawk's lamentable share performance has forced my hand.

With the stock market riding relatively high, the share picking game has clearly become a little more difficult. Still, portfolio candidates should not be difficult to find. Indeed, I already have a few in mind. Readers may recall that some years ago I nearly descended on Compass, the catering giant. But I missed the gravy boat as the shares, inspired by recovery hopes, romped ahead from less than 200p. They are now at about 520p, having topped 550p. The stockbroker Charles Stanley is one fan, forecasting a £900m profit against £773m.

And with belt-tightening now an accepted part of the nation's rehabilitation, I may also be tempted to alight on a pawnbroker, such as H&T. Arbuthnot has increased H&T's target price to 400p; as I write the shares are 350p.

Down among small caps, I am well disposed towards Animalcare, Aviation and Capital Pub Co. Animalcare sells pharmaceuticals to vets which, judging by the bills my family has incurred, should be a lucrative occupation. Aviation, leasing aircraft to airlines, has moved to full listing from Plus – the first to make the journey following more relaxed rules – and Capital seems to be more than capable of standing its round in these sober times when so many pubs are feeling the strain.

Having to discard the Aim-traded Nighthawk was a bitter disappointment. Since September's boardroom shake-up, the shares – already down from 50p to 20p in a year – have been under intense pressure. Stories of corporate action had little impact and the price continued to disintegrate after I sold at 14p. The portfolio paid 44p, so the escape price represented a significant loss. The shares are 13p after falling to 11.5p.

Even with the price sinking to new lows, I was tempted to hang around. Although there is evidence that the group is sitting upon some rich US oil and gas deposits, the stock market appears unwilling to listen to bullish arguments. When the shares hit 14p my patience evaporated; it seemed pointless to resist the selling tide any longer. It is, however, possible that the portfolio could move back into the stock. Many analysts have commented favourably on the group, with some estimating its value exceeded 200p a share. The worry is that much of Nighthawk's spread is proving to be expensive to tap and some observers suspect it could encounter unexpected problems.

The group was the portfolio's first (and, so far, only) investment in the uncertain world of exploration. I have always been cautious about such highly speculative activity. I know it is possible to strike it rich and many investors have done so, but my present inclination is to avoid any more such adventures.

It was Nighthawk's boardroom upheaval, with founders and executive directors David Bramhill and Joe O'Farrell leaving, that disconcerted many shareholders and was largely responsible for last month's shares debacle which prompted the reversal of my earlier decision to stick with the company. Still, its performance has certainly improved and production in its past year was sharply higher, although still on the low side. The loss was cut to $1.3m from $1.7m. The company's new chief executive, Tim Heeley, says he is reviewing spending "to ensure that our resources are effectively targeted".

Mr Bramhill is planning a quick return to the stock market. He is working on upgrading Wessex Exploration, where he is chairman, from Plus to Aim. The shares should arrive early next year. Wessex, capitalised at £10m, has interests in southern England. It also stretches to more remote parts of the world, such as Madagascar and French Guiana where it has offshore interests. The company, which arrived on Plus nearly a year ago at around 1.75p a share, hopes to raise £1.875m by placing shares at 2.5p. The price is now 3.25p.

Another Bramhill play, called Osceola Hydrocarbons, is also on its way to the stock market.

yourmoney@independent.co.uk

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