GETECH Group Plc Surges over 20%: Is It A Superior Stock To Genel Energy PLC And LGO Energy PLC?

Should you buy shares in GETECH Group Plc (LON: GTC) rather than Genel Energy PLC (LON: GENL) and LGO Energy PLC (LON: LGO)?

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Shares in geosciences services business Getech (LSE: GTC) soared by as much as 22% following an upbeat trading update on Friday, with the company’s directors anticipating that trading figures for the year to July 31 will show very significant progress versus last year’s figures.

In fact, Getech now expects pre-tax profit to double versus the prior year, with it set to reach £2m in the 2015 financial year. Furthermore, revenue is expected to rise by 29% versus the prior year, with it due to reach around £8.5m for the full year.

Although this performance would be below previous market expectations, given the challenges faced by oil and gas services companies such as Getech during the last year, a doubling of pre-tax profit appears to be a relatively strong result. Furthermore, Getech remains optimistic regarding its future prospects and, while it believes that market conditions will remain challenging, it appears to be relatively resilient and able to cope with a weak oil price.

Looking ahead, Getech stands to benefit from two of the three major contracts it recently signed with national oil companies coming onstream (in terms of a profit contribution) during the current year. Additionally, the integration of consultancy business ERCL is progressing well and its positive contribution to company profits is encouraging. In fact, Getech is expected to increase its earnings by a further 17% in the current year and, with its shares trading on a price to earnings (P/E) ratio of 11.1, it appears to offer good value for money.

Clearly, the oil and gas sector is relatively uncertain for all of its participants. For example, Iraq/Kurdistan operator Genel Energy (LSE: GENL) recently reported a halving of its pre-tax profit in the first half of the year. That’s despite its sales rising on the back of increased production, with relatively high depreciation and additional exploration costs hurting its bottom line.

Looking ahead, though, Genel has considerable potential to post strong share price growth. That’s due to its net profit being expected to increase by as much as 46% in the next financial year and, with Genel trading on a price to earnings growth (PEG) ratio of just 0.2, it appears to offer a sufficiently wide margin of safety to take account the risks that it currently faces. In addition, hopes of a regular payment cycle from the Kurdistan Regional Government (KRG) could be realised and, should this occur, it is likely that investor sentiment in Genel would pick up.

Meanwhile, the lower cost oil environment that is expected to remain in place for a number of years may not affect LGO Energy (LSE: LGO) as much as its peers. That’s because its flagship Goudron asset in Trinidad remains economically viable even with a low oil price. And, while LGO Energy recently reported that production had fallen to less than 1,000 barrels of oil per day, renewed drilling as well as up to three new wells coming onstream in recent months should pick up the slack.

As a result, all three companies appear to offer considerable rewards for long term investors that are able to cope with above average uncertainty in the short to medium term. However, due to its greater size and scale, as well as its vastly appealing margin of safety, the risks for Genel appear to be somewhat less than for Getech and LGO Energy, thereby making it the preferred option at the present time.

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.

Peter Stephens 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.

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