Derek Pain: Nighthawk on the brink of swooping again
No Pain, No Gain
Saturday 25 July 2009
Nighthawk Energy could be on the verge of a remarkable comeback. The US-focused oil and gas group was once the star of the No Pain, No Gain portfolio. But its shares lost their exuberance. And to pile on the agony, a much-hyped stake sale was abruptly cancelled last month, sending the shares into freefall and leaving the group looking forlorn.
The shares are a long way from their 116p peak but, as I write, they are around 45p, giving the portfolio a sniff of a profit. My guess is the price has higher to fly. It nudged 60p in June when an Italian money group agreed to buy a 20 per cent interest in Nighthawk's flagship venture, the Jolly Ranch in Colorado.
But the Italians failed to deliver the promised cash and the deal had to be abandoned at the last minute, leaving David Bramhill, Nighthawk's managing director, red-faced.
It is a review of the likely oil reserves at the Jolly project that has provided the new impetus. According to Schlumberger, a formidable American oil services group, nearly 1.5 billion barrels of the black stuff are probably obtainable. The report prompted stockbroker Hanson Westhouse to lift net asset value from 102p a share to 268p – a staggering increase.
Nighthawk splits most of the Jolly acres with Running Foxes, a US group. The Schlumberger appraisal concentrated on a significant slice of the spread. It is rumoured that the entire Jolly field, mostly owned by the two partners, could contain as much as five billion barrels.
Hanson calculates that Nighthawk's oil share from the study area, assuming only 20 per cent recovery, is 146 million barrels, rising to 220 million from its entire Jolly pitch.
It's the equivalent of finding "a large North Sea or West African oilfield", observes analyst Peter Bassett. With other US fields – one of them should produce 23 million barrels, possibly 114 million – Nighthawk could have around 334 million barrels in place.
Bramhill believes the Jolly assessment should put Nighthawk "on the radar screens of major energy groups". Certainly he must, in retrospect, be delighted that the Italians failed to come up with the cash. With the new estimates – and the oil price now higher than when the deal was negotiated – he would, no doubt, have been accused of selling far too cheaply.
Its collection of US operations makes the group one of the more interesting plays in the oil sector. And there are no near-term funding requirements, although I would not be surprised if some projects, such as the Cisco Springs field, are eventually sold. Nighthawk has carved out an interesting niche for itself and, with corporate activity growing in the industry, could attract a takeover bid. There is also, I hear, a strong possibility that the group will lift its US profile by achieving a New York share listing within the next few weeks.
Elsewhere, shares of Printing.com, which mainly produces small items such as leaflets and business cards, are a little above the portfolio's buying price. Chairman George Hardie told shareholders that trading was being maintained, although promotional activities must be impacting on profit margins. Still, the group seems to be increasing its market share.
Julian Tolley, analyst at stockbroker Hoodless Brennan, has shaved his profit forecast to £1.9m and rates the shares a hold. If last year's dividend is held – and there is a good chance it will be – it should be around 10 per cent.
Another constituent, the Booker cash-and-carry chain, seems to be enjoying something approaching a spending spree from its 414,000 customers, largely corner shops, pubs and restaurants. Chief executive Charles Wilson reports sales in a 12-week period rose 7.8 per cent. The group moved from AIM to full listing at the start of this month.
Booker was recruited last summer at 24p a share. The shares are now around 35p, with sales by some directors, following the ending of a lock-in, having little impact.
Finally, shares of the portfolio's newest recruit, Clarity Commerce Solutions, have, seemingly unnoticed by the wider investment community, made heady progress. The price brushed 50p, against around 30p when results appeared last month. The portfolio alighted on the shares at 29.5p in April.
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