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Interesting. I’ll do done research when I get home

MTsparky, where have you got an EV of £0 from?
It’s more like £225m, which is still good but certainly not zero.

Conclusion
Given its popularity in the 2020 stock picking competition, Rockrose seems to be an open secret in the retail investing community. The group’s shares are up by more than 10% in the year to date. In such cases, it is worth revisiting some behavioural biases and emotional traps.

One behavioural bias is the fear of regret - a hindsight bias that can lead us to buy investments we wish they had purchased, which in turn fuels a trend-chasing effect. Just because Rockrose is a popular pick in a competition and its share price is going up, it does not mean it is an objectively good investment.

That said, another bias is anchoring, where an initial value - in this case the share price of c2,100p - is used as an “anchor” that people then adjust up or down to reflect new information. People tend to adjust their anchors insufficiently, however, meaning share prices can take a while to fully reflect a change in prospects.

On the face of it, it looks as though Rockrose’s shares are cheap even given recent reratings. The ranks show an attractive blend of value and momentum:

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As such, it’s no surprise that the stock figures highly on the VM Rank screen and has a VM score of 97. With management signalling its appetite for further M&A, is the Rockrose share price just too cheap to ignore?

https://www.stockopedia.com/content/rockrose-energy-is-this-share-price-just-too-cheap-546816/#comments

More growth and acquisitions to come?
There are studies out there that suggest, on the whole, mergers and acquisitions are at best neutral to the buyer and at worst a value-destructive distraction. That said, given the background and expertise of the board, and the specific North Sea opportunity it has identified, perhaps Rockrose can buck this trend.

Existing assets are generating cash flow. The team wants to deploy that cash flow into development projects that could push out the decommissioning point and make money for shareholders.

Rockrose has so far focused on sites run by experienced operators with strong track records that have the potential to extend field life, and that are viewed as mid-life to late-life and as non-core by existing owners. This last point might be a way of enabling both buyer and seller to realise value in these exchanges. A core part of Rockrose’s strategy is to minimise overheads and to function as a low-cost operator. This low cost base permits it to identify value where more traditional operators cannot.

It is likely that more deals will be announced in 2020 and management is looking at multiple potential transactions right now. Rockrose has been linked to a bid to acquire private equity-backed Siccar Point Energy and withdrew an offer to acquire Independent Oil and Gas last year.

Risks
There are several risks to bear in mind with a company like Rockrose. Perhaps the most fundamental is the execution risk involved in such an acquisition-heavy strategy. There is no way to really forecast the materiality, timing, or riskiness of future deals. The group is building a track record of successful acquisitions though and investors are clearly willing to assume that this can continue.

As part of this strategy, Rockrose has rapidly built up its decommissioning liabilities. Tests show a decommissioning date more than six years in the future for most of Rockrose’s fields but the group is searching for acquisitions that will extend the life of its overall portfolio.

As of 31 March 2019, total decommissioning obligations were estimated at £456.9m for UK assets and €115.8m in respect of Dutch assets (on a post-tax basis). Of that amount, £37.0m plus €0.6m is expected to be spent between 1 April 2019 and 31 December 2020. For a company with a market cap of less than £300m, these are sizable obligations to be aware of.

Competition could also increase. Oil prices have recovered and stabilised from the 2014 crash. In that time, other companies with similar strategies have been established, such as Delek Group and Chrysaor. Increased competition for assets could make favourable deals harder to come by.

There are also the standard risks that apply to all oil and gas explorers and producers - namely declining commodity prices and overstated reserves.

An experienced board aligned with shareholders
The board certainly seems to think Rockrose shares are good value. They bought nearly £140k worth of stock in 2019 at between 1,868p and 1,984p.

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Running through the board briefly, we have:

Andrew Austin, founder and executive chairman, 27.2% shareholder. Founder of RockRose Energy and one of the founders and the former chief executive officer of IGas Energy. Prior to IGas, he raised funds from private and public equity and spent 17 years in investment banking, working for Merrill Lynch, Nomura, Citibank and Barclays Capital.

Richard Benmore, non-executive director, 2.5% shareholder. 35 years of experience in the Oil and Gas industry with Conoco, Oryx Energy, Nimir Petroleum, EnCana, Nexen Petroleum and Igas Energy.

John Morrow, non-executive director, 1.7% shareholder. Chartered Engineer and has over 30 years of experience in the oil and gas industry. Previously chief operating officer and on the board of directors of Bowleven, before moving on to work as head of exploration and production at Glencore from 2011 to 2019.

Peter Mann, managing director, 2.1% shareholder. Joined IGas in 2013 and moved to Rockrose in 2017. Prior to his oil and gas career, Mann attended Sandhurst and spent six years in the army before joining Cazenove Capital’s asset management team and in 2011 left to implement and run a private office in London

Richard Slape, chief financial officer. Joined Rockrose in 2019 and has over three decades’ experience working with independent oil and gas exploration and production companies.

2018: Dyas and Arran

2018 was a big year for the company, with two substantial acquisitions.

First, a deal to acquire a package of non-operated producing assets from the Dyas group of companies for €107m. This transaction added 6,000 boepd to group output, taking the total to over 10,000 boepd. Some 13 million barrels of oil equivalent (mmboe) of 1P reserves (proven reserves with at least a 90% chance of being profitably recoverable) were also added.

On 8 August 2018, RockRose acquired a 20.43% interest in the Arran field development for a nominal amount. This development brought another 8.6 mmboe of 2P reserves (proven and probable reserves). It is operated by Shell and due onstream in the first half of 2021, at which point it should produce 5,200 boepd of initial net production.

2019: Marathon

This M&A momentum continued into 2019 with the transformational purchase of Marathon Oil UK.

Rockrose paid $95m but Marathon had some $250m in the bank. The reverse takeover doubled Rockrose’s production (again) to over 20,000 boepd and brought net 2P reserves up to 63 MMboe.

A promising value-momentum candidate?
The argument for buying Rockrose shares is pretty straightforward: the shares look very cheap. They trade on a forecast PE ratio of 2 and at just 3.8 times free cash flow. The company has also committed to paying out 85p per share in dividends, making for a c4.3% forecast yield.

The group’s cash (post-Marathon) is pretty much equal to its market cap - unrestricted cash (cash that does not have to be put aside for future decommissioning costs) for the enlarged group is now estimated at around 1,950p a share.

Furthermore, Rockrose’s share price has been suppressed by non-economic sellers being made to trim their holdings due to the rapid share price appreciation. There are signs that this is reducing. Share price momentum is definitely on the up.

Combine the group’s positive relative strength with its cheap valuation metrics and you have an intriguing value-momentum candidate.

Rockrose Energy: is this share price just too cheap?
Monday, Jan 13 2020 by Jack Brumby13 comments 3316 reads
54| Report
Rockrose Energy is this share price just too cheap
Investors have high hopes for Rockrose Energy (LON:RRE) - it was the single most popular pick in our Stock Picking Challenge 2020. Why are so many savvy retail investors predicting big things in 2020 from this North Sea oil producer and explorer?

The bull case is that Rockrose shares are cheap given recent acquisitions. A rapid roll-up of assets is not without execution risk, but so far Rockrose has proven to be an extremely lucrative investment for long-term shareholders.

It has been a pretty stratospheric ride so far: the share price has shot up from 51.5p to 2,107p in just four years. Meanwhile, the share count has risen from six million to 15 million shares in issue in order to fund acquisitions.

In 2014 a sudden crash in the oil price caused many overseas operators to evaluate their North Sea oil and gas portfolios. For some (particularly US and Japanese operators), it kickstarted a period of retrenchment. They left behind mature, profitable operating assets that were deemed to be non-core.

Andrew Austin, the executive chairman and founder and 27% owner of Rockrose Energy, saw an opportunity. A new vehicle could step into this void and roll up orphaned sites. In this manner, you might rapidly assemble a substantial portfolio of North Sea oil and gas assets.

Four years later, and that appears to be what is happening. The group has gone from a standing start with a market cap of £5m to more than half a billion dollars in assets and a market cap in excess of £260m. Here’s a quick recap on how the group did it.

How to build a North Sea oil and gas producer
2015: incorporation

RockRose Energy is established as an acquisition vehicle to identify onshore and offshore production opportunities and infrastructure projects.

2016: listing

On 13 January 2016 Rockrose began trading on the London Stock Exchange, raising £4.4m before expenses at 50p per share. The team looked at more than 35 opportunities with a focus on “mature cash producing assets in politically stable geographies, particularly in the UK.”

2017: Egerton, Sojitz and Idemitsu

The group agreed to acquire Egerton Energy Ventures for £1m in March, before raising £8m at 150p in July. A month later, Rockrose acquired Sojitz Energy for £2.5m. Later in the year, the group made its biggest acquisition so far: Idemitsu UK for £29.7m.

Following these acquisitions, RockRose had a projected 5,250 barrels of oil equivalent per day (boepd) of production in 2018.The production and cash flow provided by these deals created a solid platform for further expansion.

For those that use Stockopedia, there is a very interesting thread by them on Rockrose.

Was it the red wine?

Slowly ticking up here.
PE of just 7.87
PEG of just 0.26
Enterprise value of just £43.6m vs the market cap of £40.6m
NAV of 44p
EPS set to grow.

Almost tempted to average up but I'm holding enough.

Another company that is on my watch list.
Look very good fundamentally with low PE and PEG. Below NAV. Rising EPS.
Then you look at the debt of £7 billion and choke. Add to this that the shares are shorted to the tune of 14.34% making it one of the highest shorted shares. If I shorted shares, I certainly would be tempted here.
The debt needs to be reduced as quickly as possible. Until that happens, I really can't see the sp going any where but down no matter how well the company does. Next stop down will likely be 150p.
For this to turn around "proof in the pudding" will be required.

Not a bad update at all. Fractionally ahead of forecast sales which is excellent considering the growth targeted.
The problem I see is this is a longer term hold due to being unprofitable. Possible the company might make a small profit next year of approx. £1m but that is only if it carries on hitting targets.

This share is an interesting one but still another growth company on AIM.

mystic ball not working?

The sp has tested the resistance of 180p 3x in the last 5 weeks and looks to have finally broken it today. If it can hold above 180p for this week the sp should then continue upwards. Looking for 250p myself, but if all goes to plan and we see profit target met for the year of £47m (net) then I can see the sp going further.
Still has a very low PE of 8 and Low PEG of just 0.18 while paying a very large dividend.
CEO has a large holding and keeps buying, so as they say, follow the money.

This was posted by The Naked Trader yesterday in his blog. (he doesn't get everything correct).

"I also shorted some more Card Factory (Card). That's paid off today after a
very poor trading statement. Badly written too. Blames the general election!

As I have said previously. It really just sells cheap tatt. It has to pay massive
rents and I don't think this company will still be here in 2 year's time. So
I shorted some more and think with its massive debt it is only a matter of when
it goes bust. Frankly anyone investing in this needs to be sent a "good luck"
card. An old fashioned business that will go under - people just don't send
cards much anymore."

Unlike some people, I will not tell you to buy or sell as that is your choice to make alone.
I'm not sure the company will go bust as it is still making good profits, ableit via investing in expanding.
The update rns was poor though and gives little to look forward to in the coming year. Shares that have a declining EPS generally, imo, tend to decline in sp. What is worrying here though, is the debt level, with increased costs and declining profits like for like.
For me, investing here would be more like a punt than investing and would certainly be a short term trade. More info is needed in the coming year to see how it all turns out.
Best of luck to all here.

Found this today published by IC.

Commercial property development is an inherently risky business, dependent on demand withstanding the years it takes for construction to complete. U and I (UAI), which made trading profits of just £3.6m during the first half of the year, is counting on favourable planning decisions on some of its public private partnership schemes to hit a target profit range of £35m-£45m for the 2020 financial year.

Perhaps investors should take comfort from the series of share purchases made by the group’s chief development officer, Richard Upton. Most recently, Mr Upton kicked off 2020 by topping up his holding by a further tranche worth £30,000, part of an aggregate £0.32m outlay on shares in the regeneration specialist.

Those purchases have been accompanied by steady gains in the share price since the start of November, which has risen by almost a quarter during that time. Admittedly, that is partly representative of a broader post-election rally in UK real estate shares.

The cost of funding developments – which included the Arts Building and Kensington Church Street in London – meant the loan-to-value ratio of the group’s portfolio rose to 47.1 per cent over the first half of the year, just under a ceiling target of 50 per cent. However, management said it expected that level to reduce by the March 2020 year-end as planning decisions are received.

IC View
Analysts at house broker Peel Hunt forecast that net asset value (NAV) at March 2020 will be down marginally on the same time in the prior year, but to then grow by 4 per cent to 300p a share at March 2021. At 178p, the shares trade at a 41 per cent discount to the group’s forecast NAV at that date. That seems to more than account for the the heightened risks associated with commercial property development and a still uncertain macroeconomic backdrop, which means further upside in the share price could be on offer. There is also a forecast dividend of 9.9p a share on offer this year, equivalent to a yield of 5.6 per cent at the current share price. Buy.

Last IC View: Buy, 143p, 20 Nov 2019

Some big buys gone through recently as well as a delayed buy of £100k. Still no TR1 rns released.

Bit of a long read but worth it. Hope it helps.

Dividends - there's rather mixed messaging here. This is what the company says today;

The board remains committed to its previously stated dividend policy, returning surplus cash to shareholders via ordinary and special dividends whilst maintaining year-end leverage in the range 1.0-2.0x (current target 1.7x).
The board does not anticipate that a special dividend will be paid in FY21.
The level of ordinary dividend in FY21 will be reviewed in the context of the cash flow profile associated with the refreshed business strategy. Further guidance will be provided in April.
That seems really badly worded - it seems to be saying, yes we'll keep paying big divis, but then says no we probably won't!

With hindsight, it strikes me that the company made a mistake paying special divis in recent years, and should have instead used surplus cashflow to reduce debt.

Forecast divis for this year are 13.2p, which is far too high (although should still be covered by earnings).

In my view, management should re-base the divis down to something like 6p, which would equate to a still excellent 6% yield, but would enable it to invest more in the business, and pay down debt at the same time.

My opinion - CARD has clearly had a lousy Xmas, and I wonder if it's time for new management to be brought in?

The share price has crashed to such an extent, that I'm seeing value here at the current price of 100p. Personally, I bought recently at 140p, so am trying to decide whether to double up, or sell out.

On the upside, this is still a remarkably profitable business, with a very high operating profit margin & great cashflows. New store openings are trading well (presumably on very low rents & long rent-free periods), and the new retail partnerships, e.g. with Aldi & Matalan, sound promising.

On the downside, it's had a lousy Xmas, and the trend in earnings is clearly downwards now. If management cannot arrest that decline, then maybe it's time to bring in new leadership? Or, perhaps declining profits are just inevitable, given rising costs, combined with declining footfall?

At the moment, I feel neutral on it, although it's very tempting to buy around 100p, because that level strikes me as an over-reaction to what is actually a fairly mild profit warning. The share price had already fallen beforehand, so arguably we're seeing double-counting of the bad news.

Having bought at 140p, if I double up at 100p, then that brings my average down to 120p, and I could see the price rallying to around that level fairly soon, giving me a chance to exit at breakeven.

This is a far from terminal situation, unlike many other retailers.

There's more detail in the trading update today, but I've spent enough time on this one, so will move on now.

Estimating EPS - I can't find any broker notes, so have had to work out my own estimate for FY 01/2020, as follows;

EBITDA: £82m (mid point of guidance range given today)

u/l operating profit: £70.8m
(based on deducting £11.2m depreciation + amortisation of software, which compares with £10.9m actual last year - I've allowed a bit more for this year, to take into account depreciation on new stores)

u/l profit before tax: £66.9m
(assuming interest cost same as last year, of £3.9m)

u/l profit after tax: £54.6m
(LY tax charge was 19.4%, so I've estimated 1% less than this, so 18.4% for this year)

EPS: divide PAT of £54.6m by 341.5m shares in issue = 16.0p EPS (my estimate)

Trend of EPS - in last 3 years, this is clearly on a downward trend now;

FY 01/2018: 18.9p
FY 01/2019: 17.6p
FY 01/2020: 16.0p (my estimate)

If my EPS estimate is right, then the PER is 6.8 times, based on 109.5p current share price.

That looks very cheap, but we do have to consider that companies with declining earnings should be priced on a low PER, and there is also the debt to consider (see excellent post in reader comments, from rmillaree and Zipmanpeter - many thanks for your contributions)

Director buy - the CEO has just bought a paltry 10,000 shares today. If that was designed to show confidence, it's back-fired. If the CEO is only prepared to risk £11k of fresh money on buying shares, then that worries me, more than reassures me.