The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
I'm going to join you in that.
I always find it very suspicious when people refer to the MMs having no choice but to move things up. It always seems to be said when a share price is actually moving down.
Oil and gas never shuts down. It will 100% have been producing.
I have to say that I am very impressed. This is two market days in a row that Zenith have announced very significant news with major potential for the company’s future and the thing I like about it most is that they are two such different deals.
The Tilapia deal is a real opportunists bargain and is a good sign that AC is really on his game when it comes to squeezing other companies for their assets in the post-Covid world. Bringing the price down for the same asset from £1 million to £200k is a real example of that and is a clear case of getting a potential bargain from a distressed/uninterested competitor as they change management and direction.
The Sidi El Kilani deal is a completely different kind of deal but possibly even more important for Zenith. Not only does it bring some much needed production revenue to the company portfolio but it also shows that AC can sit at the same table as the really big boys and be taken seriously. The Kuwait Foreign Petroleum Exploration Company is about as opposite to AAOG as you can possibly get and has almost unlimited cash and vast amounts of assets. It takes a completely different negotiating strategy to do a deal with them as instead of picking up a bargain from a distressed competitor, you are instead trying to pick up a bargain that is too small for them to care about. They also have to take you seriously enough to feel that they are not wasting their time. AC now has a relationship with them and has even said that he is looking forward to doing further deals with them in future.
In terms of the assets themselves, they compliment each other beautifully. With Sidi El Kilani we have an assets that will immediately give us production revenue. We have paid £500k for this and it generates gross revenues of $15 million (which at 22.5% is £3.37 million to Zenith). Obviously this will be down somewhat in the short term but the really important thing about this is that it makes ZEN one of the rare small cap AIM oilers to actually have any production income at all.
The Tilapia deal is completely different. This is an asset that needs money put into it but it also has the potential to be a massive company-making deal that was once marketed as a $100 million market cap. It is miles away from generating that money but the stake in the asset is big enough that it can be farmed out bit by bit at higher and higher valuations while still leaving ZEN with a big chunk of a big number. It is a “jam tomorrow” deal but there is a lot of jam potentially on the plate.
So the two deals put together make a lot of corporate and commercial sense both for today and in the future. It is a nice balance of an asset that will bring in revenue and an asset that could be company making. This is exactly what I was referring to last week when I talked about finding companies that will outperform the market as the recovery kicks in. This is definitely one of them. The BoD have been busy when others are resting.
Well it has been a very interesting day here today....
It started off very positive with the AAOG news and the fantastic discount that the board had negotiated on the purchase price of an asset that could be company making. However, the day got even more interesting when Brokerman Daniel leaked that ZEN are also in the process of purchasing the Tunisian assets of the Kuwait Foreign Petroleum Exploration Company which produce 700 bopd.
If this is true and is pulled off for a sensible price, then it would be quite a week for Zenith Energy and I would expect the share price to increase substantially from here when the news is formally announced. It would certainly be a very good sign that this is one of the stocks that is set to outperform the market and multibag when the global recovery kicks in.
Like I said the other day, the price here is going to rebound significantly when the global recovery starts to kick in. Today we have a 20% rise just on the hint that America is starting to get back to work - and even though cinemas will be in the final tier of the lockdown loosening.
Imagine what is going to happen to this share price when things start to actually genuinely loosen up globally? I am not sure that this will hold the gains today as (IMO) it is just early morning optimism - but for me this is a sign that this share is a surefire recovery play and will rebound like gangbusters when restrictions start to be lifted in the US and UK.
GLA
Like I was saying the other day, as the global economy moves into recovery mode the stocks that are going to bounce back the most are the ones with a significant flow of news in the pipeline. A rising tide will lift all boats, including companies that are basically directors lifestyle cos. However, those stocks that are really going to reward their shareholders the most are those with boards who have a coherent strategy and the balls to take advantage of the chaos that is out there.
This is not just true of share investment, it is true everywhere. If you look at what Ole Gunnar Solskjær said about Manchester United the other week it was basically (and I paraphrase) "Manchester United are going to take advantage of this global crisis. We have money and we are going to take advantage of those who need cash by hoovering up players who would previously not have been available to us on the cheap".
Essentially, ZEN have just done exactly this to AAOG. They ahve taken advantage of the Covid crisis to renegotiate the existing deal to the massive benefit of ZEN and it's shareholders. It is a buyers market out there and especially when you are the only customer then you can name your own price as long as you have the balls to do so and the money to back it up.
The fact that ZEN have pulled this off is a very good sign - not just for the Tilapia oilfield deal itself, but also for the company going forward. Quick and ruthless response to changing economic situations is exactly what I want to see in a company management and if they can keep this up ZEN will definitely be one of those stocks that has the potential to multibag as the global economic recovery comes online.
The price will improve as time goes on. 96 million shares sold today and the price remains static. A good sign that.
Fair enough Andy - apologies.
I tell you for a fact that I would far rather live in the USA under Trump than China under Xi. In the former you are constitutionally entitled to freedom of thought and freedom of speech. In the latter if you say the wrong thing then you disappear. It is acceptable to their people because they are no longer poor, but allowing them to export their brand of ruthless dictatorship globally will result in a worldwide hell. look at the way they treat their own people and then think how they view westerners. The general population are already making it clear how much they hate Africans: https://www.aljazeera.com/programmes/insidestory/2020/04/coronavirus-africans-china-targeted-200413185723311.html
Agreed- NASDAQ is the right place for a stock like this. More interest, higher volumes and quicker movement. The move would have my support.
This definitely runs on sentiment. imagine what will happen to the current share price if trrime is right and they can announce another deal.
Agreed, it is pathetic how Rabb is pandering to their propaganda and legitimising the lies that are coming out of China. They are now trying to convince the world that it was not their fault when they shut Wuhan off from the rest of China while still letting international flights go out to the rest of the world.
However, you can see that they are worried they way they are ramping up the propaganda - did you see the Huwawei statement yesterday? https://www.bbc.co.uk/news/technology-52189281
it is a sure sign that they are worried.
With the debt that they have it is undeniably not a good position but the govt do want to get the economy going back to normal and people are still going to want to see films in the cinema. For full disclosure, this is not a stock that I am currently invested in but it is one that I can see some quick money being made once the lockdown is lifted.
This may not be of much comfort to those down in here at the moment but the point I am trying to make is that there is a definite upside still to come. The share price WILL go up when restrictions are lifted - it is just a matter of by how much.
Agreed sadoldgit. The Chinese know that at the moment the West is focused wholly internally on covid victims but once we are over that there will be a reckoning. I don't thing that we will be as keen on buying their cheap rubbish in the future and nor will anyone else. They know that too which is why their propaganda machine is in overdrive right now trying to blame the virus on anything that is not them - witness their release of the Rabb conversation this morning: https://www.thetimes.co.uk/edition/news/huawei-boss-warns-uk-against-halting-5g-rollout-during-the-coronavirus-crisis-rmtlcqz65
Utahsaints - great name by the way. I used to love that band (or at least that one single lol!)
Utahsaints - are you referring to me? I can assure you that I am not the least similar to Trump (though I do wish I had his money). However, the thing about trump is that he can still be right about some things even though he is an idiot about others. The Chinese are given a free ride on all their misdemeanours simply because they do not want to offend anyone (look at the report this morning of Rabb kowtowing to them). At least Trump calls them out on their lies.
Always a chance of dilution with any share - especially when they need capital, but I don;t think that is too important at the moment. This is one to just hold for the moment and when the lockdown restrictions are lifted then it is time to buy more.
There is definitely money to be made here with the share price going up but because of the nature of the business that time is not yet.
This just keeps going down. Glad I got out when I did and best of luck to all the poor souls that are still in here - if there are any.