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Copies of the Circular are available for inspection on SOCO's website at https://www.socointernational.com/
Company just issued Merlon Acquisition circular and notification of AGM. Date is 21/12/2018 with completion targeted at half 1 2019
It’s good to hear new posts on here and finally we getting a conversation on here. Nothing new to add, I guess everyone on here know that the fundamentals are on cue here and a lot of upside to add once the acquisition is bedded in.
Whether this proves to be a correct analysis, only time will tell. But I suspect that the oil business is becoming rather like the tobacco business. Long-term, and that's very long-term, it's in decline but in the meantime, the established low-cost players can afford to pay high dividends to shareholders. SOCO's model of paying out a substantial proportion of its free cash flow to investors, in my view, has a logic to it. Some small-scale oil producers can be built up and sold on but many cannot because their assets are fragmented and they are of dubious quality.
Basically, SOCO seems to have a model that works well bearing in mind the research that shows the importance of dividends with respect to investors' total long-term returns. That said, the one big potential downside is the price of oil. To some degree, it's a bet on the price of oil. But it has set itself up to be a full cycle low-cost producer. In my opinion, many other oil companies and with them their oil production will go to the wall before SOCO in the event of a collapse in oil prices.
Looks like a very good investment opportunity apart from the declining share price and the weakness in the oil price.
As is often the question, when will this stabilise and hit the bottom?
Quite amazing really. Looking very briefly at the UKOG segment of the Bulletin Board and there are, as I write, some 569 postings and the stock price is down more than 9%. While this is the second posting, thus far today, for SOCO and the share price is down around 0.9%. The former has never made a bean and neither has it ever paid a penny to shareholders while the latter has distributed some US$476 million to shareholders between 2006 and 2017. As for exploration upside. Where would you put your bets on? SOCO's acquisition target, Merlon Petroleum, has a 59% success rate with wells that it has drilled based upon 3D seismic.
With some 70% of Merlon's 1570 square kilometres of acreage covered by 3D seismic and a success rate of over 50% for new wells drilled by the company, I would expect SOCO to really push to develop this concession. Especially bearing in mind just how constrained it has been offshore Vietnam due to its partner's decision not to fund drilling. Whether that will equate to a doubling of the share price within a year, I wouldn't like to guess. But I do think that the company is moving into a different phase and its profile is changing quite substantially. It's less risky as it will have low-cost operations in two jurisdictions and, at the same time, Egypt presents it with a huge upside.
Of course, as you mentioned, the oil price is the joker in the pack but pivotal to the company's model is a focus on low-cost production. The Merlon acquisition simply reinforces that focus – In 2017, Merlon's operating expenditure was just US$6 per barrel.
According to Ed Story he’s looking to double the share price within the next year ! That statement was made when the SP was 88p. Everything obviously depends on the OP
Paying out high but sustainable dividends presents investors with a model that is fairly straightforward and understandable. If earnings collapse then so to will dividends and presumably the share price. It's not an investment without risk. At the same time the company, in my view, is conservatively and well managed. Will it become a “Multi-bagger” over, say, the next two years? I doubt it. But the Merlon acquisition does allow its scope for expansion and that is not quite possible with its current portfolio. And that growth in production and reserves gives, at least, the prospect of a re-rating.
Selling some other stocks (KWS and ACSO) to buy more sub 78p!!! With a medium term view, future dividends alone will cover my purchase price ! Remember when the oil price was in the 90-110 range, they were giving 40p and 20p dividends!!
I did dip my toe in at the low 80s and then a couple of big buys for me at 89p, averaging 88p at the moment. Let’s see where the acquisition takes us.
There’s plenty of upside to come from
Soco in the new year, with the acquisition of Merlon doubling the up on the reserves is a no brained for me with another dividend to follow. So what’s not to like, the market has fallen out of love with Soco but it’ll some catch up beyond its peers. Ed and the BoD just need to keep raising the company profile and then watch it fly. GLA
Yep. Let it be remembered this company paid an annual dividend of 5p per share twenty months ago, and 5.25p early this year. For my money, this is a very good value "buy".
For a company that shows every sign of maintaining its dividend, it does seem to be undervalued on that metric alone. Especially considering that it's a low-cost, full-cycle operator. The Merlon acquisition is cash accretive and its development opportunities, according to SOCO, are low-cost and low-risk.
Of course, oil could really nosedive and, maybe, that is what the market is pricing in. But, by its own estimation, it will still remain profitable even with an oil price in the early US$30s per barrel.
What a frustrating day trying to buy a decent amount of SIA, seems the MMs had a special higher buy price just reserved for me every time I hit buy. I will be trying to buy more next week if the price stays around 80p and when it comes time to sell the same thing will of course happen, it will be difficult to sell in one lot but will be all worthwhile if the price gets to £1.
SOCO is an enigma to me. I've been a share holder a couple of years ago in and out over a few months. The return of capital is admirable but the drop in share price significant despite oil doing well. I tend to look at cash and this has dropped looking at H1 figures. Outgoing director pay was large on off. What people don't like is lack of production growth. Hopefully the new acquisition will provide this. it's certainly on my radar.
As an investor rather than a trader, I may take a longer-term perspective. But I suspect that most traders thrive on an ample supply of news. In recent years, that has not been forthcoming from SOCO. Its cash pile has grown while it sought out an attractive proposition. The acquisition of Merlon should provide the company with many development opportunities and that will equate to more news. Basically, it will give traders more to work on – whether they are going long or even shorting the company. And, of course, its capitalisation will be larger so it will probably be a more liquid stock with tighter spreads.
I agree its looking like could be on its bottom, I have traded this a few times but its always been hard to buy a worthwhile amount of SIA and just as hard to sell them on a quote and deal and I really don't like at best orders. I will set a limit buy order for a modest amount at 81p and watch if drops further and buy a few more if 80p is reached then set a limit sell order at £1 which could take till end of January but worth a punt.
Thanks for your insight stockable, may have a nibble as the investment case looks fairly solid
Yes, the stock has performed poorly over the last six months with the price falling some 20% from early May 2018 to around 80p as of today. However, I get the impression that there is a broader malaise amongst small cap oil stocks. If we take a look at the S&P Smallcap 600 Energy Index from 7th May 2018 to 5th November 2018, basically a six month period, it has fallen by just over 18%. Incidentally, the price of Brent has dropped just 3.6% over the same period. Whether it's the ingrained herd instinct of many fund managers, or what lies over the horizon in terms of renewables, I am unsure. It may have something to do with the business model followed by many small-cap producers with a reluctance to distribute their profits. The company could have found itself caught up with wider investing trends.
Taking a closer look at SOCO, the proposed merger with Kuwait Energy fell through in March 2018. So I suspect the market was concerned about its possible direction.
and the story compelling, but what caused the SP to implode over the last 6 months
Simply receiving a response from a listed company confirming that it takes on board constructive advice or criticism has to be good news. SOCO has a narrative that it needs to disseminate. As an investor in the company, I think that its narrative is very positive. But it needs to make it more widely known and social media is an appropriate way.
Incidentally, in my opinion, the acquisition of Merlon offers real scope for major low-cost and low-risk expansion. However, that message needs to be more clearly conveyed to the market. SOCO seems to be caught between the large cap resource companies, that are obviously well-covered and widely followed, and the small caps that have, in some cases, almost fan clubs of small investors. Maybe a few evening events aimed at private investors would lift its profile.
Email reply from investor relations: Thank you for contacting us through our website, apologies for the delay in responding I have been on annual leave. Thank you for your feedback, we have added the Twitter feed to our website now. Should there be any material update on the business we will of course update the market via an RNS. Yours sincerely, Communications Team SOCO International plc 48 Dover Street, London, W1S 4FF, United Kingdom Registered in England. Company No. 3300821. www.socointernational.com
SOCO has built a reputation on being a solid dividend payer. That may be stating the obvious but it still amazes me the number of investors, especially private investors, who are looking solely to capital gains. According to an article in Forbes published in March 2018, between 1930-2016, dividends contributed some 43% towards total returns for the S&P 500. In fairness, it did go on to point out the risks attached to investing in very high yielding stocks. However, SOCO is not a very high yielder. But it does offer a good yield.
My understanding is that it will maintain or increase its dividend and the acquisition was made with that in mind. And it's a full cycle low-cost operator. Both its current assets offshore Vietnam as well as its proposed acquisition are low-cost operations. Importantly, Merlon gives the company a lot of low-risk growth opportunities. And it means that the company will not have all its eggs in one basket – offshore Vietnam. It will have less geographic risk. Rather than impede its dividend, it strikes me that buying Merlon is likely to make it more sustainable.