No Pain, No Gain: A good chance to extract a profit from oil and gas
Saturday 26 January 2008
Nighthawk Energy, the No Pain, No Gain portfolio's only explorer, has helped to keep the home fires burning since it was recruited last summer. At a time when many micro-caps have suffered savage punishment, its shares have moved ahead, standing near 50p against a 44p-buying price.
Not a spectacular performance, I know. But at least the shares have headed in the right direction. And I remain convinced they have further to go. Some researchers think the price should be nearer 100p. Certainly many City institutions, despite the stock-market turmoil, have a soft spot for them. It is significant that when smallcaps are more likely to be ostracised than offered support, the oil and gas group has achieved the distinction of actually raising new cash in the stock market.
Its stockbroker, Hanson Westhouse, apparently had no trouble pulling in £14m by placing shares at 46p, a modest discount considering the present state of play. What's more, the cash call was, I hear, oversubscribed, with some institutions appearing on the share register for the first time.
Nighthawk, concentrating on developments in the US, only arrived on the stock market a year ago. It was floated at 25p a share. Since then it has made rapid headway, increasing its exploration spread quite dramatically. The £14m cash injection will be used largely to carry out exploration at what is known as the Jolly Roger site in Colorado. Nighthawk works hand-in-hand with a US oil group, Running Foxes. The two share ownership of the 140,000 acres; RF is the operator. David Bramhill, the chief executive, reckons Jolly Roger has the potential to "transform the company into a mid-tier hydrocarbon company".
After the placing, Nighthawk is capitalised at around £100m. With a midcap group commanding a £1bn or so valuation, there is still a long way to go.
Besides its Jolly Roger investment, the group has other ventures including the Cisco Springs development in Utah, which is already producing and is thought to harbour vast quantities of gas.
The group's fields are mainly former production areas, abandoned a few decades ago when low prices and difficult terrain made them uneconomical. Today's higher energy prices and improved technology, is offering a new lease of life, allowing once again the profitable extraction of oil and gas.
Nighthawk has the added advantage, unlike many other explorers, of operating in one of the most stable areas of the world. There are hopes it could move into profit in the next year or so.
Another portfolio microcap, Private & Commercial Finance, has also made headway. It is, however, a very different creation to Nighthawk. A hire-purchase group it is, perhaps somewhat surprisingly, prospering in the sub-prime credit crunch. The group has disclosed that it enjoyed a record run in November with fourth-quarter trading up 86 per cent. A new bank supporter has provided an extra £20m of back up finance.
Last month, after announcing buoyant trading, PCF shares jumped to 24p. Then a sudden bout of selling pushed them to 18p. They are now, following the latest bulletin, 23p. Perhaps this time round they will manage to hold their improved level, despite the stock-market mayhem. The portfolio paid 19.5p
Finally, an unpleasant taste has emerged at the Food & Drink Group, the constituent running the Jamies and Henry J Bean bars. For the second time in little more than a month it has put back its results announcement. Whilst the first postponement created hardly a ripple, the second devastated the shares, more than halving their value. The crash was not surprising. The first delay was accompanied by a statement that the figures would be in line with stock market expectations – a profit of around £900,000 – but the second contained the sobering revelation that the anticipated £900,000 had declined to £600,000.
Not surprisingly there are worries about just what chairman Stephen Thomas, who also runs the Luminar night clubs chain, will say when he finally gets round to reporting figures on Monday.
The portfolio acquired FDG at 241.5p a share. They topped 280p before slipping lower as worries about consumer spending increased. Before the profit shock the price was around 215p. It is, as I write, a dismal 79.5p. Clearly, if there is not a reasonable explanation, I will give the shares the old heave-ho.
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