I am invested in good oil assets, but they have not moved as expected. The reason, I think, is that the markets changed. For share price to grow, the companies must deliver cash earnings. It is not enough to declare the cash is coming. The market wants to see the cash. If the cash is delivered, the share prices should re-rate. Both below companies are good examples of that.
My favourite oil assets
Africa Energy – AEC has been one of my most favourite assets. It has a 10% stake in one of the largest gas condensate deposits globally, just off South Africa. The operator of the asset is French Total. AEC declared it wants to derisk the asset and sell it. Earlier this year, AEC announced that Total aims to sign an offtake agreement with the South Africa government by October. When this happens, AEC will be in a position to sell its stake without problems. At least, that is what a leading Norweigan oil analyst told me today. Based on my analysis, the 11B/12B deposit value should be a multiple of current market capitalisation. I expect at least a 100%-200% return on the investment.
The stock has drifted down as retail got tired of waiting. Pity I am invested up to my own limits; otherwise, I would buy more.
There is a detailed thesis on this opportunity:
Panoro – has been one of the best capital allocators in the industry. When others were scared, Panoro was buying. They bought assets when the oil price was USD 40. The results are impressive. According to Pareto, its oil revenues are going to rise from USD 27 million in 2020 to USD 173 million in 2021. Its Cash flows will increase from USD5 million in 2020 to USD120 million in 2021. The market capitalisation is around USD 200 million. The share price trades at PE of around 4. All these improvements are not reflected in the share price. Panoro is reporting 25/8. It should show material cash earnings improvement, and the share price should finally reflect this.
OTHER OPPORTUNITIES TO LOOK AT:
Quantafuel – the stock sold off 30% in the last 10 days on delay of Skive and CEO resignation. The management stepped in and started to buy shares. QFUEL had this moves before. These moves have so far been profitable. I played it three times. I am very long QFUEL. Thesis is below:
Biovica – is one of the top picks for this quarter. The company is due to get FDA approval and start sales in the US. The company has 25 studies from leading US and EU hospitals that their breast cancer works, saves lives and costs of treatments. Biovica is to become a global leader in this novel way of testing for cancer. Xbrane, in a similar situation, doubled in two months prior to such an announcement. Biovica will most likely do as well. See the below article for the full investment case:
Linkfire. It is a recent IPO listed in Stockholm. It was placed at 11.20 SEK, it is now around 10 SEK. It is a play on the growth of music streaming and, in the next phase, movie streaming. Pareto will be publishing research in two weeks time. I am long and very bullish, Linkfire. I will publish an article on Linkfire in the next two weeks.