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Peel Hunt names SOCO as a top pick noting that the Merlon acquisition resets portfolio and that the “stock offers 8% div. yield and 17% production CAGR”
Yes production drop was clearly telegraphed in the admission document issued in December
There was lack of drilling and clearly communicated
There is a phased lock up
Additional liquidity isn’t a bad thing
20 Sep last year:
"Merlon produced 7,859 bopd (net) in 2017"
Today's RNS:
"Production from the El Fayum concession during Q1 2019 averaged 5,692 barrels of oil per day"
Was this 30% production drop known to the market before now?
Around 60 mill shares will be for sale after this takeover completion with no lockup period.
I hope Peel Hunt is right but I see their condition for their re-rating belief is a successful implementation of extensive drilling programme (and not before) and that will take over a year to get started properly.
I wouldn’t Touch TGL with a 50 ft barge pole!
It is one of the most illiquid shares on AIM! The NMS is tiny! Some times weeks go by without a single trade!
AVOID ! With a capital A
BUY SOCO instead
SIA drills in Vietnam, so another idea for a diversified energy portfolio is international oil producer TransGlobe Energy (TGL) that drills in Egypt and Canada.
TGL is a profitable company that generated more than $30 million free cash flow in 2018 and gives 4% dividend (semi-annual).
TGL's current Enterprise Value is less than 2 times its annual cash flow. Dirt cheap.
Many catalysts ahead excluding the oil price such as the gushers of 3,800 bbls/d in South Alamein and Ghazalat, the Cardium wells in Canada and the new acquisitions thanks to its free cash flow in 2019 again.
Free cash flow in 2019 is estimated about $40 million because CapEx in 2019 is just $34 million, see guidance.
Do your dd to verify all of the above.
Peel Hunt upgrades UK-based oil & gas co Soco International Plc to "buy" from "add" saying "market has not yet valued the portfolio reset"
Brokerage believes value in transformative Egypt acquisition has been missed by the market
Proposed acquisition gives co scale and numerous upside opportunities - per broker
Broker views the co as undervalued asset, a clear path to production/NAV growth, among others
Peel Hunt believes successful delivery of the extensive Egypt drilling programme being key catalyst for a share price re-rating
Volume will exceed 2 million by COB ... hopefully something is brewing in background!
Broadly speaking, nil cost options strike me as being a poor idea. However, in the past and I assume the situation has not changed, the SOCO options were linked to Total Shareholder Returns compared to a comparator group of companies. If we look at the annual report for 2017, we can see that from 2009 – 2017 (Inclusive) the CEO has only received 100% of the options vesting on one occasion. And has also received 0% on one occasion. Basically, there are strings attached. But the RNS could have made the situation a lot clearer.
Sure, the granting of options is designed as an incentive programme but I believe they are also there to get the recipients committed to the organisation. In my opinion, there would be greater alignment if there was a cost attached to the options plus a very long holding period. This seems to be a generic problem with many listed companies.
"The Company announces that on 7 March 2019, its Persons Discharging Managerial Responsibilities ("PDMRs") were granted the following nil-cost share awards over ordinary shares of £0.05 each in the Company ("Shares") under the Company's Long Term Incentive Plan ("LTIP")"
A disgrace as far as I can see. For the CEO to receive 2,040,087 options to "buy" (haha - receive) SOCO shares FOR FREE, is a NOT an incentive to perform well... These options are already £1.4m 'in the money', so there is plenty of profit there already without performing any better than today. Even if the shareprice drops further by 50% from today's price he'll still get shares worth £700k!
The purchase price for incentive options should be always at least 25% above grant date's share price. The carrots must be hanging on a stick in front of the donkey, not thrown to it on the ground.
As yesterday's preliminary results outlined, SOCO is now at a turning point. The acquisition of Merlon opens up the prospect of drilling on its Egyptian acreage by the year-end. And it's about to acquire, in H2 2019, 2D seismic for its offshore Vietnam blocks 125 and 126 where it has a 70% interest. Basically, at long last, it seems to be on the move. As for its intentions in regard to Ophir, that appears to be over, at least for the time being.
In the meantime, the company offers a very attractive yield and has a strong commitment to maintaining the dividend. But, as with most oil stocks, much is dependent on the price of oil and success at the drill bit. That said, it's a low-cost producer and its Egyptian acreage (Some 70% is already covered by 3D seismic) presents a pipeline of low-cost opportunities.
Sold out of this some time ago as SP been on a downtrend for years but bought back in this AM as results offer some hope - revenues, profit and dividend all up. Up from year low.
due a re rate on basis of divi and cash alone.
Looked at crudely, it seems to have paid on the high side for Merlon. For the year ended 31st December 2017, Merlon's profit before tax was some US$8 million. The real issue is just how well and how rapidly it can execute on its development plans. There appears to be a reasonable number of drill ready opportunities. And, of course, it's onshore in an area with high success rates and a rapid return on investment. There appears little to impede growth in production aside from the usual question of luck.
To some degree, it really comes down to faith in SOCO's management. I would suggest that we should know the answer to that within a year from now. But, thus far, the company has demonstrated a willingness to share its success with its owners (Shareholders). And that's in stark contrast to most London listed oil companies.
The Merlon purchase states that production 7000 barrels but after the profit share is taken into acc it will half that which for me makes the purchase a bit on the expensive side and would explain the muted responses from the market
Three months sat here? What gives.
Today's update seems to reiterate the importance of the Merlon acquisition. Its offshore Vietnam assets appear tired and, of course, that's impacting its reserves. Ultimately, it needs to drill more wells but its partners don't appear willing to stump up the cash. That said, its production is reasonably stable and there is the real prospect of action in H2 2019 as the Merlon acquisition kicks in. But much is riding on making the purchase a success.
On balance, I think that buying Merlon is a smart move. Moreover, its acreage is situated in an area with very high drilling success rates at over 50%. And the cost of drilling is relatively low, averaging no more than $3 million per well. With some 70% of its 1,570 square kilometres covered by existing 3D and targets already identified, it seems to have little excuse for inactivity. With the acquisition so close to completion, I would have thought that it's time the company put its plans for developing Merlon on the table.
Sold my shares after reading 2 mil loss of reserves issues not resolved drilling not until second half of year yea I think Ed was overly optimistic in his video and just plain wrong on some of what he said
Been here years and cannot understand why this company has not progressed what went or is going wrong here?
Is it possible that the joint drill partners don’t want any more drilling as that would rise asset value.which they are going to make a bid on mmmmm,and is the Egypt move not an addition ,but a replacement asset.
Is SIA the next OPHR?
Took a few SIA today with some of my OPHR money
Lack of interest on this board. An ideal time to get in before Merlon news arrives.
The lack of action in its offshore Vietnam acreage may explain the news drift and, to some extent, the flagging share price. In my view, this is a serious company going through a major change in direction. And there will be a period of quiet while the acquisition is bedded down. It simply, thank goodness, does not provide the same type of news fodder that outfits such as UKOG supply.
In terms of developing its assets, H2 2019 appears to be the starting date. And let's remember, one of the attractions of this acquisition is that it offers the opportunity to drill in an area where not only the cost of drilling is relatively low (It expects to use a replicable format) but the success rate is very high. However, we may need to accept that there is going to be very little to move the share price, aside from the price of oil, before then. Incidentally, there is some academic evidence to suggest that stock prices tend to drift after a major announcement.
If this takeover is close to what has been quoted the production should almost double next year or this year as they say production from takeover starts in 2018. In which case a 0.055p dividend was paid last year so could we get a 8 or 9 pence dividend with the extra production which would make the valuation of 71 p very low.someone tell me if I am wrong I know production was down and oil price has dropped but I think they still got a good average for Vietnam oil if the Egypt production is to be added well we will all watch the shares go up to the double that the chairman mentioned
Piddly low vols, why is this so unloved ?