One of the characteristics of the pandemic environment on the stock market since Q1 this year is that investors have focused on picking sectors, rather than picking stocks / individual companies. This has, by definition, turned them into momentum players, rather than value investors. Clearly, not everyone wants to be Warren Buffet or has the time horizon and or deep pockets to do so. However, with the low hanging fruit of mining, tech and biotech largely up with events, it may be time as we go for the final quarter of 2020, to go for different sectors and where appropriate, be company specific.
Oil & Gas Bargains
Oil & gas has of course been side-lined by many as fears of the effects of lockdown on travel in particular, and economic growth in general have been heightened. But to do so is to forget that at this point in the cycle assets and production costs are reduced, and in turn there are bargains to be had. It also means that as the larger players move to cut costs and production, smaller, more nimble players can hunt for bargains. In addition, those in the sector with experience of the highs and lows of the cycle have a clear opportunity to shine.
Prescient i3 Energy
Enter Majid Shafiq, CEO of i3 Energy, where his bargain hunting deals earlier this year already look prescient given the rise in oil and gas prices from those ultra depressed levels. This means that 2020 operational cashflow forecasts have doubled, and maybe most importantly for shareholders, from Q1 next year we can mark up the dividend yield from 8.9% to 13.3% according to broker Mirabaud.
That i3 Energy is set to throw off cash is underlined by the company’s latest operational update. It has confirmed that Group production from the Gain Energy and Toscana assets during October averaged 9,407 boepd. This followed the acquisition of Toscana at the end of last month. The Toscana deal was i3’s first entry into Canadian oil and gas earlier this year, and has proved to be a well timed move. When one adds in the tax losses of Toscana, amounting to CAD$128m and the run up to trading of i3 shares on the Toronto Stock Exchange later this week, we are looking at a busy and high profile time for the company.
North Sea: Serenity
This is especially so given the way that as far as i3’s North Sea assets are concerned, it has said that discussions regarding the Serenity farm-in. Adding together the Serenity and Liberator projects there are indicated to be approximately 600m barrels in play. Such a deal would effectively become the icing on the cake for i3 Energy, taking the £33m market cap company into the realms of the mid-tier in the oil & gas given a significant double geographic focus and attendant production.
10.7p Broker Target
Indeed, perhaps all that is left to be resolved currently for i3 Energy is that investors appreciate the work that has been done to get the company into the strong position it is now in, and run with the stock off recent lows near 4p, something which compares to a Mirabaud share price target of 10.7p. In August i3 Energy raised £30m at 5p for further its Canadian campaign, something which has clearly been enough to take it on a journey to paying out a dividend early next year, and should offer a re-rate in the stock ahead of time.
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