Indus Gas (LSE: INDI) and IGAS Energy (LSE: IGAS) have one thing in common: the two companies have huge potential.
Indeed, even though the two oil & gas minnows operate in different regions of the world, they are both severely undervalued and have a huge amount of untapped potential.
Undervalued
Indus holds a participating interest in a petroleum exploration and development concession in India known as Block RJ-ON/6.
According to the recent competent persons report on the block, RJ-ON/6 has proven plus probable reserves of 872 billion cubic feet equivalent of natural gas. And Indus’ accountants believe that this resource could be worth $2.3bn to the company, before capital expenses, or $1.8bn net of capital expenses.
Indus’ market capitalisation is only £224m at time of writing.
What’s more, unlike many of the market’s smaller oil & gas companies, Indus is already profitable and generating cash. City analysts expect the company to report earnings per share of 10.4p for this year, which means that the company is currently trading at a forward P/E of 8.1.
Further, analysts expect Indus’ earnings per share to jump 170% during 2016 to 28p. On that basis, the company is trading at a 2016 P/E of 3.
So overall, based on Indus’ bargain-basement valuation and volume of untapped resource, the company has all the hallmarks of a potential multi-bagger.
Plenty of support
Unlike Indus, IGAS’s future is more uncertain. City analysts believe that the company will continue to lose money for the next three years. A pre-tax loss of £2.1m is expected for 2015, a loss of £6.4m is pencilled in for 2016 and a loss of £2.5m is expected for 2017.
Still, there’s no denying that IGAS is well positioned for growth over the long term. The company has inked deals with several major partners over the past year, giving the group $285m of total spend from third parties across its key shale gas acreage. This funding will cover the cost of around 15 wells, flow tests and gas handling stations.
There’s also IGAS’s recent deal with partner, INEOS to consider. Under the terms of the deal, INEOS will pay IGAS £30m for a 50% interest in several of the company’s oil & gas licences around the UK.
In addition, as part of the deal INEOS will fund a work program on the licences of up to £138m. The £30m cash infusion will help alleviate the pressure on IGAS’s balance sheet.
Foolish summary
All in all, it’s clear that Indus has the potential to become a multi-bagger from present levels, although IGAS’s future is more uncertain. That said, IGAS’s partners are some of the biggest energy companies in the world, and they wouldn’t invest in the company unless it had a bright future.
