Are Castleton Technology PLC & Churchill Mining Plc More Likely To Double In Value Than Sirius Minerals PLC?

Castleton Technology PLC (LON:CTP), Churchill Mining Plc (LON:CHL) and Sirius Minerals PLC (LON:SXX) carry very different risks, argues Alessandro Pasetti.

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Say you have £2,000 in your pocket now and you are going to speculate that one penny stock not only will double in value over time, but could even deliver absolute pre-tax returns north of 1,000% — what should you do next? 

Dreamland?

Castleton Technology (LSE: CTE) is less likely to deliver that kind of performance than Churchill Mining (LSE: CHL), in my view, but its stock price could surely double, although a rally from 3p to 6p would put its valuation in the danger zone, based on fundamentals. 

I would probably stick with Sirius Minerals (LSE: SXX) at 18p a share if I were to bet on any company worth less than £500m right now. The downside, of course, is that you may end up being disappointed at the end of the process, particularly if you chose Churchill. 

Intangibles

Castleton’s stock price ranged between 0.92p and 3.61p over the last 52 weeks, and its stock currently trades at 3p (+42% year to date), which implies a market cap of £45m. 

Last week it reported a trading update for the year ended 31 March, which showed revenue at £6m and widening economic losses due to one-off charges. The market is pleased with its aggressive strategy — Castleton is mopping up assets — but the value of intangibles on its balance sheet is significant (at 73% of its total assets), while its stock is very expensive based on its price-to-tangible book value. 

Formerly Redstone, this software support services group could be a decent bet, but I’d not underestimate the risks associated to its strategy. Furthermore, stiff competition in the sector could limit short-term upside. 

Arbitration 

We know that Churchill’s equity value hinges on the outcome of the international arbitration cases that Churchill and its Australian subsidiary Planet Mining are pursuing against the Republic of Indonesia. The arbitration arises from the unlawful revocation of the mining licenses relating to the East Kutai Coal Project in East Kalimantan, in which Churchill and Planet held a 75% interest, Churchill insisted in its latest update. Its stock has halved since a record high in June, and its market cap now stands at £34m.

Churchill estimates that the damage can be quantified at about $1.3bn; consider that capital appreciation in the region of 1,000% from its current stock price of about 22p would yield a market cap of £320, or about $500m. That’s less than 50% of the value that Churchill claims it could fetch!

That said, the government of Indonesia is well known in the international community for playing hard ball in these situations, and I am not sure that we might still have an investment case if it simply decided not to pay or if proceeds were much lower than expected. 

Financing

Sirius is fairly priced right now, at least based on several elements that can hardly be quantified!

The biggest event that should emerge over the next six months should be the arrangement of a comprehensive financing package backing the development of its flagship York Potash project in York. 

There has not been big news to report recently, but latest signs are encouraging and point to an investment that could be properly priced right now — and one that could still be a bargain at over 40p a share if all pieces of its York project fall into place. 

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.

Alessandro Pasetti 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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