Is IGAS Energy PLC A Buy At Present Levels?

Is IGAS Energy PLC (LON: IGAS) a buy after recent developments?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s been a rough start to the year for IGAS Energy (LSE: IGAS). In only four weeks the company’s shares have declined by 11%, as shareholders have become concerned about the viability of fracking in the UK.

Nevertheless, IGAS has started to recover over the past few days. Luckily, several pieces of good news have helped pull the company’s shares higher but there’s a certain amount of uncertainty regarding IGAS’s future. 

And it all comes down to the state of the UK’s fracking industry. For example, IGAS’s shares took a dive last week when a panel of lawmakers recommended that fracking for shale for oil and gas in the UK should be put on hold. What’s more, planners in Lancashire recommended that the county council’s Development Control Committee should reject an application for shale drilling in the region. 

But only a few days ago, both of these issues were resolved. The proposed moratorium on fracking by Parliament has been rejected and the new infrastructure bill provides clarity on the rules for new and existing operators seeking to invest in shale.

Deals taking place 

There has also been some M&A going on in the UK fracking sector over the past week. In the latest corporate shale deal, Newton Energy UK Ltd — which holds four onshore production, exploration and development licenses in the East Midlands — was sold to Hutton Energy.

For IGAS, this deal and others like it are great news as it indicates a growing interest in the UK’s shale prospects. The more interest the sector generates, the easier it’ll become to push projects forward and cost of drilling should be pushed lower.

Bid speculation 

IGAS itself has also been the subject of bid speculation recently. Indeed, it has been rumoured that Swiss chemicals group Ineos has been in talks to buy a share of IGAS’s acreage.

However, these talks are only the beginnings of Ineos’s ambitions. Analysts have begun to speculate that the Swiss group could be weighing up a £30m equity stake in IGAS to help fund drilling and development costs. 

Difficult to value

Overall, IGAS is set to benefit from an increasing amount of activity and investment in the UK’s fledging fracking industry. However, it’s difficult to try and place a value on IGAS’s shares at present. It will take time for IGAS to generate cash flow from the extraction of shale gas in the UK and the company has a weak balance sheet — IGAS has £28m of cash and £108m of debt.

Moreover, based on earnings forecasts for 2017, IGAS looks expensive as the company is currently trading at a 2017 P/E of 18.4.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »