Derek Pain: Despite Nighthawk's lacklustre showing, the portfolio is edging up
No Pain, No Gain
Saturday 18 September 2010
The No Pain, No Gain portfolio has achieved modest headway in the past three months, but Nighthawk Energy, its one shot at enjoying some reward from the resources boom, is a worrying disappointment.
Recruited three years ago at 44p, the shares, as I write, have halved. Various exploration bulletins have been upbeat, but the US-focused oil and gas group has failed lamentably to endear itself to the stock market.
The shares, which once topped 100p, have, I feel, been buffeted by a round of private placings. The cash-hungry group may not have to indulge in another cash-raising exercise in the near future, although, with estimates it had only $9m (£5.8m) in the bank in July, the need for it to complete the sale of a stake in its main Jolly Ranch oilfield looks increasingly important. An earlier attempt to sell an interest ended in abject – even farcical – failure, and there is little doubt that its development progress has been costly and slow, failing to meet City hopes.
Yet, it seems to me that doubts may have submerged reason. The group has, I think, quite a lot going for it. Production hit a record 8,200 barrels of oil equivalent in August, and the past year's revenue has surged from $498,000 to more than $2m. Assets have climbed from $81m to $114m. And with the stockbroker Westhouse Securities looking for the shares to reach 88p, there must be a case for suggesting the stock market's valuation is far too timid.
Even so, developing its US assets is an expensive exercise. And in seeking to sell a minority Jolly Ranch stake, Nighthawk could crystallise values but is, in effect, also signalling cash needs. I believe it is the ghost of the failed asset sale that haunts some investors, and until a rewarding deal is clinched Nighthawk could remain under pressure.
With the shares continuing to edge lower, my patience is, not surprisingly, growing thin. Although I feel the stock market is being too harsh, I am reluctant to swim against the tide and may be forced to administer the old heave-ho unless sentiment improves.
Despite Nighthawk's negative contribution, the portfolio's quarterly report is moderately encouraging, with profits edging forward a few hundred pounds to £96,400. Dividends – which back-of-the-envelop sums suggest could have exceeded £30,000 during its near 12-year existence – and dealing costs are excluded from my calculations. The portfolio's gain is still well below its near £150,000 peak, hit when small caps were in demand and the stock market was a much happier place.
Booker, the cash and carry group, is the star constituent, nearly doubling in value. My two FTSE 100 stocks, however, have experienced mixed fortunes. Whitbread shares rose after it rolled out an upbeat trading statement that embraced heady performances by its Premier Inn and Costa Coffee operations and a satisfying display by its chain of pub/restaurants. But G4S, the security group, lost ground although its interim profits were quite solid.
It's also a game of two halves on the fringe Plus share market, with the two constituents in contrasting moods. NCI Vehicle Rescue, a roadside assistance group, remains on the right route, helped by chairman Richard Jackson topping up his share stake. But English Wines Group refuses to blossom and I expect to be forced to take retaliatory action in the near future.
Clarity Commerce Solutions, providing software for the leisure and retail industries, continues to win new (or improved) deals. It has produced another encouraging trading statement, reinforcing the view that profits could advance from £1.9m to £2.5m this year.
Since my last quarterly review, shares of Private & Commercial Finance, the hire purchase group, have slipped a little lower. One of the stockbroking firms following the company dramatically cut its profit forecast during the summer. At one time, Daniel Stewart was looking for profits of £1.1m. It is now forecasting £522,000 – roughly in line with other predictions floating around the stock market.
Hargreaves Services, the coal mining-to-transport group, produced another set of impressive results. Pre-tax profits rose 17.4 per cent to £30.7m, and with chairman Tim Rose talking about an "encouraging outlook" the year's dividend is lifted 14.4 per cent to 13.5p a share.
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