City Analyst1 on advfn15 Aug 2020 20:30
The recent surge in natural gas prices has brought to the market’s attention a commodity that had, until this point, largely flown under the radar of even the most avid follower of the natural resources sector.
However, for serial value investors like myself, the rally in natural gas prices did not come as a surprise.
Global demand for natural gas is expected to grow exponentially over the next 10 years. Specifically, and according to a forecast by oil and gas giant BP, natural gas demand will expand at a 3.5% average annual rate through to 2040. That forecast implies a nearly 70% increase in demand from 2018's level.
That outlook, alongside the unrelenting rally in natural gas prices, also suggests to me that natural gas plays are about to move into the ‘Top 50 trending stocks’ club. And whilst the biggest natural gas producers in the world stand to benefit the most, they are not the only options for those considering an investment in the sector.
There currently exists a handful of natural gas plays on AIM with extraordinary upside – I’m talking ‘ten bagger’ type of upside.
These stocks were pummelled during the coronavirus-triggered sell-off back in April and are currently sporting spectacular risk-reward profiles. However, there’s one stock that sticks out like a sore thumb. It is, for all intents and purposes, a potential ‘ten bagger’ and much more besides.
Thus, cue Prospex Energy.
The company describes itself, rather humbly, as “actively advancing a portfolio of late stage, onshore, European natural gas projects focussed on the foredeep play.”
However, there’s more to this company than meets the eye.
On May 22, 2020, Prospex Energy’s BOD reiterated two things to the market: First, its expectation to commence gas production (at an initial rate of up to 150,000 standard cubic metres per day) at the Selva Malvezzi gas field (in Northern Italy) by Q1 2021. And second, its unwavering confidence to secure £360,000 (€400,000) of non-equity development funding for its 17% share of the Selva gas asset by Q3 2020.
On the same day, Prospex Energy’s head honcho, Bill Smith, reminded investors of two very important aspects of the company: First, that the company continues to boast significant assets (of £6.3m or 7.11p per share) relative to its current market capitalisation (of £1.43m or 1.62p per share). And second, that, ahead of any drilling campaign, the company was on track to produce over 7.8m standard cubic metres of gas (net to Prospex) in 2021 from its Po Valley, Suceava, and El Romeral gas assets.
Yes, feel free to bark the highly unsavoury but apt remark, “What the ….!”
Howard Stanley Marks, the serial value investor, and founder of the multibillion, wealth management firm Oaktree Capital Management, once opined that:
“Buying cheap stocks is great, but buying good companies cheaply is even better. That’s a potent combination.”
Fellow investors, at 1.62p per share (£1.43m market cap), and against a NAV
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