Sunday, 19 January 2014

2014 Stock Picks : Group 2 The Mid Tier

Group 2 : Mid Tier Mixed Stocks

Blimey, this was meant to be a quick and easy review of some twitter tips for 2014 but the list of 41 is proving time consuming! Not helped by a very busy time at work this week so needed to focus elsewhere.... but..... here are more details about the mid tier picks from twitter followers who reckon these are going to be the top choices for 2014. As always, the following is only intended to signpost companies to do your own research on. Information is in the form of basic overview only from public web sites, so please DYOR if interested in any of the below picks. Out of all of the following my interest was drawn to Kromek, Thalassa and Coms, none of which would be my usual cup of tea but all of which seem to be making solid progress and are already operating profitably at least at an operational level with bullish management statements recently.

Mid Tier (£30m - £100m market caps)

Chosen By
Starting Market Cap
Starting Share Price
Solomon Gold
Range Resources
Baobab Resources
Westminster Group
Sirius Petroleum

For the full list of all 41 stock picks please read the following link ...

Kromek (KMK)
Kromek arrived on AIM in October 2013 and describe themselves as a pioneer in digital colour imaging for x-rays, materials technology and advanced 3D imaging. In their words they are “changing the way we see the world”. Their focus is on highly specialised semiconductor materials which are used in detectors of x-rays, gamma rays, medical imaging, security screening (including civilian and military markets), industrial inspection and space exploration.

Kromek also supply x-ray imaging equipment which provides real 3D x-rays for the first time without specialist viewing equipment. They are targeting application in nuclear (cell) detection, including forms of cancer screening, as well as for a growing trend for networked sensors which will create significant additional opportunities. In summary, they are working across three key sectors - medical imaging, security screening and nuclear detection.

Their recent half year report to end of October (released 8th January) shows sales growing quickly up to nearly £2.4m versus £0.7m same period year prior. That turned a gross loss to a gross profit albeit administrative expenses still left them with an operating loss following their IPO in October. They did repay all £3m of their debt at this time however so are debt free. They have secured a $5.3m development deal as a partner to four top OEM’s in the market and another contract just short of $1m. Their security screening business saw multiple contracts awarded for their airport bottle scanners and finally their Nuclear Detection business won contracts worth up to $3.7m. They own 70 granted patents with 110 pending. Arnab Basu, CEO, commented “Kromek is currently growing strongly as we enter the rapid commercialisation of our business, utilising our powerful IP and technology platforms”

Looks like a nice little company with fast growth and one which seems to be moving to greater commercialisation throughout 2014.

Thalassa (THAL)
Thalassa Holdings Ltd is focussed on marine seismic operations. Their corporate strategy is "Exploration and Beyond". The "Exploration" part focuses on frontier activity and/or challenging locations, whilst the "Beyond" part focuses on production activity and securing opportunities in permanent reservoir monitoring. So a mix of higher risk challenging projects and lower risk mature production projects. Sounds interesting so far.

Alongside their technical expertise and consultancy in marine seismic operations they also operate, via a subsidiary, three portable modular source systems (PMSS™). These PMSS™ generate seismic source for use in seismic acquisition in oil and gas exploration. The equipment is temporarily installed on the back of a platform supply vessel.

Recent performance looks promising and the share price has risen strongly. On 8th January the board announced that they expect to significantly exceed market expectations for the full year 2013. Turnover is expected to be broadly in line but “operating profit and earnings per share to beat expectations by more than 10% and 20% respectively”. Results will be out week commencing 17th March but capital expenditure is forecast to increase as a result of increased business interest recently. They plan to refurbish two compressors recently acquired and build a mini PMSSTM for use in the high resolution 3D sector.

Interestingly over 3m shares have just been bought by the company (from the Chairman and from treasury) to hold in trust on behalf of all employees to reward performance and potentially share future profits more equitably amongst employees. I like this too. In my opinion it shows a progressive mind set amongst the board and should enhance employee engagement and therefore performance (I would say that working for one of the UK’s largest employee owned companies!) One to watch and to do more research on to check the current SP versus financial performance as it has risen strongly. There are only 24m shares in issue so not a big float at all.  

Plethora (PLE)
Plethora is focussed on a sector that being honest I’m not interested in - the health industry. From an investing perspective it generally scares me due to the volatility of share prices (that’s rich I hear you cry when I bang on about oil and gas explorers) Presumably either a product works or it does not and for this reason I’m not sure how you pick your investments? That said I will keep PLE in the list as it’s not my selection.

Plethora has a product that they hope to launch, PSD502, which is a spray for the treatment of premature ejaculation. They anticipate a launch in 2014. Premature ejaculation is possibly the most common form of sexual dysfunction in men and there is currently no globally approved and effective pharmaceutical treatment for this condition. (Note the word “pharmaceutical” which I presume means they therefore exclude alcohol J  ) So the market potentially offers significant potential for development and growth

Plethora is engaged in discussions with potential partners to agree the manufacture, licensing, product size and format, launch plans, marketing etc. A lead manufacturer has already been identified. Dependant on the moving parts all coming together the launch of the product is planned for mid to end 2014. In addition to European approval already received, a submission to the US Food and Drug Administration is being prepared which would open up a significant market “at least as big as Europe”

The Chairman commented “The board is committed to the delivery of commercial value at the earliest opportunity in 2014… and ....the company intends to see the launch of PSD502 at the earliest opportunity”. Not one for me, but if you are interested it seems that much of the R&D is complete and that they are moving towards launch this year.

SolGold (SOLG)
SolGold is based in Queensland, Australia and its strategy is “to be an integrated gold and copper discoverer, developer and miner”. SolGold's projects are located in northern Ecuador, Australia, and the Solomon Islands and consist of the following:
·         Ecuador - a joint venture on the Cascabel copper-gold project. The company have just announced the results of a drill which indicate the discovery of a large high grade copper gold porphyry system. They are apparently the best results of all of the stage one drilling that they have done recently.  
·         Australia - 100% interest in the Rannes, Mt Perry, Cracow West and Normanby Projects, all in southeast Queensland. The Rannes project has indicated and inferred resources of 18.7 million tonnes at 0.9 g/t gold equivalent (296,657 ounces of gold and 10,137,736 ounces of silver).  
·         Solomon Islands - the Fauro Project on Fauro island, and the Lower Koloula, Malukuna and Kuma licenses on Guadalcanal. A JV partner is being sought for the Fauro project to pursue drilling of gold-copper targets defined in the 2011 exploration program. 

Board and Management hold approximately 15.1% of the issued share capital which should indicate an aligned interest between board and investors. They have completed a number of placing over the past year which puts me off but to be fair the share price has risen from 2p to 8p over the past 12 months. The directors have also participated in the placings so you can make your own mind up on this choice.

Range Resources (RRL):
Range probably doesn’t need much introduction as most PI’s seem to have been long or short on Range at some point over the years. However, since 2011 being short would have been the only way to make any money, much to the despair of many a small PI. Range has interests and licences spread across the world from Guatemala, Georgia, Colombia, Somalia, North America, and Trinidad as follows:
·         Georgia – 45% interest in licence with 3P of 203Bcf of gas
·         Puntland – 20% interest in 2 licences with estimated undiscovered oil in place of 3.2bn barrels.
·         Colombia – 65% interest in licence with c.5.5m barrels undiscovered OIP
·         Guatemala - 29% strategic stake in Citation Resources with 2P of 0.74m and 6.4m contingent resources
·         Trinidad – 20.2m barrels of 2P reserves owning 100% of 3 blocks.
·         Texas, USA- producing gas assets which they have been in the process of selling for $30m for around 18 months. Must be the longest sale process ever but apparently they are close to completing.

Range is producing somewhere in the region of 800 bopd (although they haven’t released an update on this for a long while), mostly from their Trinidad assets. They aim to increase this to 4000bopd by the end of this year (but don’t hold your breath). I gave up on the Range dream a couple of years ago so am biased. I accept they have some good prospects but the key for them in 2014 will be can they deliver on their promises? The SP is back at all time lows so if they can then there is every chance of a good outcome in 2014. But they also now have over 3 billion shares in issue, so any value added has a lot of shares to be divided across. Please DYOR. If you are interested I made a comparison of Range with a different Trinidad focused oil company, Trinity here

Fastnet Oil and Gas (FAST)
Fastnet is an E&P O&G company focused on near-term exploration. They have two areas of interest - Morocco and the Celtic Sea. Both of these areas are hotting up. The Celtic Sea is attracting interest following the successful Barryroe appraisal and Statoil’s Bay du Nord Discovery in a similar geological basin offshore Canada. And Morocco has attracted big players in the last year including BP, Chevron, Cairn Energy, Genel and Total.

·         Morocco. Fastnet have an exclusive option to farm into eight onshore exploration permits (the Tendrara Lakbir Petroleum Agreement). An independent assessment of these areas shows gross contingent recoverable resources between c.311 BCF (Best) and 892 BCF (High) for the TE-5 structure. A farm out agreement has also been signed with SK Innovation for the Foum Assaka Contract Area where SK Innovation will contribute to past costs and up to a two well carry on the Eagle Prospect (first exploration and appraisal well or 2 exploration wells). Well planning is underway for the first FA-1 well, estimated to contain 360 mmboe of Pmean resources.
·         The Celtic Sea. Fastnet have completed the largest ever 3D seismic in the Celtic Sea over the Mizzen, East Mizzen and Deep Kinsale areas. A farm-out process in relation to all or part of the Celtic Sea areas is ongoing with a view to concluding this process to allow a potential 2015 drilling program. This remains key to unlocking an affordable way forwards in this area. 

Fastnet had US$10.9 million cash at the end of September 2013 having completed a £10m fundraising before costs. They made a net loss of US$856,000 for the period ending September but are fully funded for their 2014 on and offshore Moroccan drilling programme

Baobab Resources Plc (BAO)
Baobab is focused on Mozambique where it is currently completing a Bankable Feasibility Study ('BFS') at its pig iron and ferro-vanadium project in the Tete province. This is one of Africa's fastest growing mining and industrial centres. Their most recent operational update highlights were as follows:
·         Boabab’s 2013 drilling campaign was successfully completed with the ambition being to convert the upper portions of the Tenge resource block, representing a minimum 10 years of operation, to a JORC compliant measured category. Preliminary results are expected this month (January) with a revised resource statement expected by the end of Q1.
·         Test work carried out in 2013 confirmed that a low impurity pig iron product could be produced using Baobab's iron ore and local Mozambique thermal coal see RNS here dated 4 March 2013.
·         Further tests are on-going and will provide the first data on the composition of the vanadium and titanium slag by-products. Results are expected in early 2014.
·         Discussions regarding port and rail allocation are making solid progress and are expected to be formalised shortly by way of a Memorandum of Understanding.
·         Mining title and industrial licence applications are being prepared for submission in January 2014. The environmental impact assessment ('EIA') and associated resettlement plan and community and enterprise development programme are making good progress.

Westminster Group Plc (WSG)
Westminster Group is involved in the supply of system solutions and products to the security, defence and safety markets worldwide. Their principal activity being the design, supply and ongoing support of advanced technology security solutions. This includes surveillance, detection, tracking and interception technologies as well as long term managed services contracts such as the management and running of complete security services and solutions in airports, ports and other similar areas. It also includes manned services, consultancy and training services. The majority of its business comes from governments, agencies, NGO's, and blue chip organisations. The Group is represented in 48 countries with a strong focus on Africa, the Middle East and Asia and has two internationally focussed divisions - Managed Services and Technology.

Last year saw Westminster restructure its business, dispose of a couple of misaligned subsidiaries, win numerous contracts, and raise just over half a million pounds drawing down on its equity financing facility (EFF) with Darwin. This appears to have been done at a premium to the share price on each occasion. Impressive! At the same time they have reduced their debt considerably following the earlier restructuring and division of the company into the two trading divisions. On the back of this the share price has risen from around 35p to stand at just over 80p today.

At the last interim results to the end of June and since this date they have announced the following:

·         Revenue from ongoing operations £4.7m (2012: £4.8m). Aviation Division revenues +214% to £1.44m
·         Gross Margin +40%. Operating EBITDA +350% to £0.18m (2012: £0.04m)
·         Significant progress in signing further long term Managed Services contracts and numerous other discussions underway.
·         Debt reduced from £3.29m on 19th June to £830,000 as of 29th October
·         Appointed as a strategic partner for security with International Air Transport
·         Significant progress on delivery of a $3m East African screening project which is awaiting certain final procedural formalities.
·         Acquired business of Aviation Security and Training business GXS Aviation

So they have had a good 2013 and look well set to continue to grow in 2014. The share price has already risen strongly, but there is good reason as to why. One to research further me thinks.....

Coms is an end-to-end provider of telecommunications and IT services to business and industry. They offer a full range of services across VoIP, smart buildings, broadband and infrastructure. They pride themselves on service, innovation, passion and dedication, and own and operate their own UK based Carrier Class telephony platform.

Recent trading looks promising. Their most recent update had the following highlights:
·         Trading in the 9 months to October 2013 was strong, with revenue and EBITDA in line with management expectations. The company enjoyed record order levels and healthy cash generation
·         Promising order book for the remainder of the year. Confident of prospects for full year.
·         All acquisitions made during 2013 expected to be fully integrated by the year-end.
·         Confidence in ability to achieve organic growth demonstrated by 2013 contract wins with Taunton & Somerset NHS Trust, London Borough of Barnet, University of Kent, North Wales Hospital, Surrey and Sussex Healthcare, Harrogate District Foundation Trust, West Midlands NHS Trust and Gateshead NHS Foundation Trust.
·         A new headquarters and “centre of excellence” in Buckinghamshire opened and is operational with the capacity for increased headcount and activity in the future.

At the time, Dave Breith, CEO, stated: "This has been a transformational period for our business and I am looking forward to updating our shareholders on our last quarter's trading performance and publishing our full year Group accounts following our year end on 31 January 2014"

Sirius Petroleum (SRSP)
Sirius Petroleum has been focused on oil and gas development and production opportunities in Nigeria for the past 3 years. They’ve entered into an agreement to fund the development of the already discovered Ororo marginal oil field, located in shallow waters offshore Ondo State, Nigeria. The field is adjacent to a number of other producing fields, all of which are operated by Chevron. Chevron discovered the Ororo field in 1986 with the Ororo-1 well, which found hydrocarbons over 12 reservoirs. The well flowed at a combined rate of c.2,800 bopd from two oil producing sands. In December 2013 Sirius announced that Schlumberger had completed an independent field evaluation study on the Ororo Field which confirmed significant recoverable resources higher than the Company's original estimates (P50 - P10 recoverable oil from the Ororo-1 well estimated at 10.0MMstb - 12.8MMstb).

Sirius also announced that it is to embark on the preliminary process for a re-entry on the Ororo-1 well. Seven oil bearing sands were identified and no oil water contact was located in any of the reservoirs. The combined results suggest the exploitation potential of the field is good. Schlumberger have been involved from the very beginning and Sirius are in discussions with them to provide project management and drilling services to accelerate the development plans and get to first oil. Sirius also have an off-take agreement already in place with Glencore Energy UK Limited which includes the potential to provide a conditional pre-financing facility of up to $65 million, the repayment of which will be made against initial sales of oil.

The downside is that Sirius has no producing assets yet and therefore no meaningful cash flow. They seem to be managing costs carefully but nevertheless operating losses in the half year to end of June 2013 were $1.24m. Finance costs of $2.088 million reflected the interest and charges on short term working capital funding. Total comprehensive loss was $3.26m. They since announced that they have additional options with which to fund the development of their first farm-in and to acquire additional assets and are at an advanced stage in this process. During the last year however they issued a total of 857k shares in settlement of fees at 3.5p and arranged a placing for 123m shares raising £1.8 million. These funds were to provide additional working capital whilst Sirius finalises the terms of the financing required to develop the portfolio of oil and gas assets

Their Chairman stated “Sirius has attracted a range of options with which to fund the development of our first farm-in and to acquire additional assets.  The recent new funds raised by the Company provide us with working capital ahead of securing our main funding facility which is now at an advanced stage.  The Board is confident that the Company is on course to successfully deliver the strategy to build a substantial portfolio of oil and gas assets”

The potential of the discovered oil field, higher than anticipated recoverable oil evaluation report, off take agreement, relationship with Schlumberger, and decent flow test on the well all seem positive. The funding would remain an issue for me as I’m not so keen on companies that have a long way to go before turning resources into producing assets and there is no indication of how long this wait will be, but among the multitude of O&G exploration companies Sirius seems to me to be better set than the average. DYOR.

To see the full list of all 41 stocks, click here

To see the overview of the first group, click here.

Thanks and happy researching!

1 comment:

  1. Great post, I appreciate you and I would like to read your next post. Thanks for sharing this useful information.
    Blur Group
    Fastnet oil
    Comms plc


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