Could this small-cap growth stock become the new “BP plc of Africa”?

Is this small-cap on track to become the next BP plc (LON: BP)?

| 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.

sdf

Since the beginning of 2017, Victoria Oil & Gas plc (LSE: VOG) has shot to fame as one of AIM’s best-performing stocks. Year-to-date shares in the group are up 111% following the announcement by the company that it had made a good start to the year after the Bonaberi pipeline came on-stream last December. 

As well as the commissioning of the new pipeline, three new customers started taking gas from the company in December, adding around 500,000 scf/d in production.

Transformational deal

The opening of the Bonaberi pipeline has transformed Victoria’s outlook. January 2017 was a record month for gas sales from Victoria’s Logbaba field, which is 60% owned by the group’s local subsidiary Gaz du Cameroun. Gas sales from Logbaba rose 4.5% to 654m mscf for the quarter, while there was a 24% increase in gas sales of 3.56m mscf for the year. GDC is the only supplier of natural gas to Douala, Cameroon’s rapidly growing second city and prices have been agreed with customers at prices from $9/mmbtu to $16/mmbtu. Prices are not subject to regulation. 

These deals have given Victoria a strong base from which to grow from. For example, at the end of the fourth quarter, Victoria reported revenue for the three months to 31 December of $4.6m, down slightly from the figure of $4.7m reported for the third quarter but more importantly, the company reported a net cash balance of $1.3m at the end of the period. Overall cash reserves rose by $1.7m during the quarter to $15.8m. 

For the year ending 31 December 2017, City analysts are expecting the group to report revenues of $28.5m, virtually unchanged year-on-year. However, I believe these forecasts are substantially underestimating Victoria’s potential. Indeed, if the company added three new customers at the end of last year, and recorded record gas production during January, it’s not unreasonable to suggest that revenues could be noticeably high this year than they were for 2016. 

Looking to expand 

As well as Victoria’s existing presence within Cameroon, the company is now starting to look to expand both inside and outside the African nation. In a recent interview, Victoria’s chairman Kevin Foo noted that the firm sees plenty of opportunities to grow within Cameroon but the business also sees opportunities outside the country. With net cash of $1.3m, $16m of undrawn credit facilities and an established presence in Western Africa, it looks as if the group is primed for growth. 

Risks ahead 

Victoria may look like it’s on the up and up, but like all early stage growth companies, investors need to approach the business with caution. Operating in a frontier market like Cameroon is always going to be risky, and the oil & gas business is hardly known for its predictability. 

So, if you want to take a bite out of Victoria’s growth, it’s best to invest with a long term view and don’t bet the house. If the company becomes an African BP, the potential upside could be many multiples of the current price. This scenario is unlikely but not impossible that’s why a small speculative position may be the best way to play Victoria’s growth, at least until it’s a more established operator in Africa. 

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 recommended BP. 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

Buffett at the BRK AGM
Investing Articles

Can Warren Buffett principles help when looking for AI stocks to buy?

Billionaire Warren Buffett has made a fortune by applying old investing principles to new industries. Can our writer learn some…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

Up 36% in 3 months! Is my nightmare purchase of Glencore shares about to come good with a vengeance?

When Harvey Jones bought Glencore shares two years ago, he didn't expect to find himself sitting on a 45% loss.…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

£1,000 invested in Lloyds shares 5 years ago is now worth…

Anyone who’s owned Lloyds shares over the last five years is probably laughing right now with impressive returns that crushed…

Read more »

A mature woman help a senior woman out of a car as she takes her to the shops.
Investing Articles

If a 50-year-old puts £500 a month into a SIPP, here’s what they could have by retirement

Investing £500 a month with a SIPP could build a pension pot worth £269,900 or quite a bit more over…

Read more »

A rear view of a female in a bright yellow coat walking along the historic street known as The Shambles in York, UK which is a popular tourist destination in this Yorkshire city.
Investing Articles

How much do you need to invest in dividend stocks to target a £1,000 passive income?

Want to earn an extra £12,000 each year with dividend stocks? Zaven Boyrazian explores how much money investors need to…

Read more »

Finger pressing a car ignition button with the text 2025 start.
Investing Articles

FTSE shares for beginners: 2 solid picks to consider when starting a Stocks and Shares ISA

For those new to investing, Mark Hartley explains why he believes these two FTSE shares could help kickstart a resilient…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Here’s how to invest £10k to target a 7% dividend yield in 2025

Want to earn a lucrative and sustainable 7% dividend yield? Zaven Boyrazian explains the strategy he uses to generate plenty…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’m taking Warren Buffett’s advice as stocks reach record highs

Warren Buffett's wisdom is guiding my investing strategy in 2025 as stocks start reaching new all-time highs. Here's how I'm…

Read more »