Traditional energy companies have been buoyed by rising prices and Donald Trump’s pro-oil US presidency at the start of the year. In this market climate, high-yield UK stock Harbour Energy (LSE: HBR) might be an option to consider for those eyeing returns as well as price appreciation.

Admittedly, the field of energy companies wooing investors is very competitive these days. It doesn’t help that Harbour Energy grabbed headlines due to its North Sea exposure. Operators, like the company, were clobbered last summer with heavy taxation by the UK’s Labour government for North Sea production.

But there’s more to the company and its performance.

Not just the North Sea

At the start of 2025, Harbour Energy remains the largest London-listed independent oil company. It has a geographically diverse portfolio comprising assets in Argentina, Mexico, North Africa and Southeast Asia. These sit alongside assets in Germany, and British and Norwegian North Sea holdings.

The company’s current global production level is around 475,000 barrels of oil equivalent per day, enabling it to offer income-chasing investors a near 8% yield.

A well-respected board and CEO Linda Cook have overseen its expansion over the last four years via both organic and acquisitive growth. Their latest strategic play was the acquisition of Wintershall Dea last year for $11.2bn.

Operational discipline

In the six months to January, marked by declining oil prices, Harbour Energy saw its share price fall by around 5%. But over the same period, this compares favourably with its peers along with UK majors Shell and BP, with both posting declines of 3% and 6% respectively.

The first three weeks of January also saw Harbour Energy’s share price rise by 11%, bringing it close to the 300p mark. It hit a 52-week high of 333p in May before oil price volatility and changes to North Sea taxation knocked investor confidence.

Harbour Energy has since been trying to regain it. The company’s net debt has decreased significantly in recent years. It expects to have a net cash position by the end of 2025. Unsurprisingly, dividends have slowly but steadily increased since March 2022.

Market rumours are also rife about Harbour Energy moving its primary listing to the US, giving the energy stock further positive vibes. The company has dismissed the rumours. Instead, it is pursuing an investment-grade credit rating (i.e. bond or other form of debt vehicle / security with a low default risk), through financial and operational discipline.

What’s not to like?

There is a lot to like about Harbour Energy, but caution is still merited. As trading in 2024 demonstrated, direction of oil and gas prices will impact the company’s share price no matter how operationally disciplined it is.

A US listing, should it happen, is not always a one-way ticket to a higher valuation, as Diversified Energy Company recently found out. Some may also find Harbour Energy’s risk versus reward profile to be too timid or conservative, with other small-to-mid sized oil and gas stocks offering greater potential for price appreciation.

On balance, this high-yield energy midcap UK stock with a low risk profile strikes the right note for me, and I will be adding more of it to my portfolio.

The post Investors craving energy plays in 2025 may wish to consider this 8%-yielding UK stock appeared first on The Motley Fool UK.

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Gaurav Sharma owns shares in Harbour Energy. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A high risk/reward permutation is pretty much applicable to every energy Alternative Investment Market (AIM) stock. Many overpromise only to fizzle out.

So, to pick winners in London’s junior market, I adopt a spot of bottom-up analysis – i.e. place emphasis on the individual stock’s financials while reducing focus on macroeconomic and market cycles to a certain extent.

Among the many AIM-listed energy stocks that I’ve looked at in this vein, minnow Afentra (LSE: AET) stands out. Its core offering includes a portfolio of non-operated mid-life producing oil and gas assets in Africa that the energy majors have retreated from.

The majority of these holdings – both onshore and offshore – are in Angola. They are viable hydrocarbon plays that currently generate revenue. At the midway point of this year, Afentra swung to a $22.2m profit (versus a H1 2023 loss of $3.1m).

Despite a tough macroclimate, wider challenges in the energy sector and oil price declines, this minnow has held its own thanks to an astute hedging strategy, i.e. protecting the majority its per barrel takings via financial instruments at a fixed stable level to manage price volatility.

Operationally prudent

For instance, according to the company’s latest update, it sold 1.68m barrels of crude oil at an average price of $84 per barrel for the first three quarters of the year. “With the final lifting scheduled for Q4 2024, which is 70% hedged with a floor of $70 per barrel, the company is well positioned to continue its disciplined financial management and operational growth,” it noted further. 

Afentra also boasts of a FTSE 250 calibre management for an AIM company. It’s led by former Tullow Oil chief executive and industry veteran Paul McDade. Based on my conversations with McDade, Afentra puts operational prudency, transparency and maintaining a low debt profile at the heart of its operations, mindful of negative perceptions often associated with AIM resource stocks.

As of 31 October, Afentra has cash resources of $37.4m and net debt of $4.6m, “while upcoming crude sales will further bolster liquidity.” Future income stability is based on the company’s desire to double its production capacity to 40,000 barrels per day within half a decade and add more barrels through further acquisitions.

Prospects and caveats

I believe Afentra potentially has room for upside from its current range of 40p to 60p to around 250p to 320p in five years. This is based on a calculation of four times its projected current end-year financial revenue ($180m) divided by the number of its issued shares.

The company’s efforts to double its production by 2029 and selling oil at an average price of $70 per barrel also appears broadly supportive of a 4x revenue projection as a basis for the calculation.

Of course, currency fluctuations and the strength of the dollar will have a say. Were oil prices to slide progressively further and faster to the end of the current decade, so will Afentra’s earnings. Planned production increases may not materialise. Such factors will impact the company’s future share price.

However, for me, potential rewards currently outweigh the risks of holding Afentra. The company appears to have medium to long-term potential and it’s why I’d be happy to add more of its shares to my portfolio.

The post Investors should consider buying this energy AIM stock, up 50% in the past year appeared first on The Motley Fool UK.

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Gaurav Sharma owns shares in Afentra. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Having been relegated from a FTSE 250 dividend-paying company to a troubled penny stock, energy services firm Petrofac’s (LSE: PFC) fall from grace may be complete. But I believe a turnaround beckons.

When its protracted bribery case finally reached a conclusion in 2021 and the Covid pandemic receded, investors hoped Petrofac may finally begin to rebuild its reputation. Instead, inefficiencies across the company’s value chain — ranging from cost overruns to payment delays — made matters worse.

As concerns surfaced over its balance sheet this year, Petrofac’s share price briefly slumped below 9p in April. Following a delay in the publication of results and a temporary share suspension, it resumed trading at sub-15p levels in June and has largely stayed there.

That’s after its biggest business unit – engineering & construction – posted an incremental loss of about $190m for the year, and full-year losses widened to $505m from $320m in the previous year.

Things might just get better

Heading for the exit may not be a wise idea for me right now, however, because things may just get better. Petrofac’s future projects book remains strong, and it has announced an aggressive turnaround plan predicated on restructuring.

It has reached near-term agreements with selected holders of its matured debt to “not take any action” during which time it is working furiously to get its act in order. That’s where Petrofac’s project book comes into sharp focus.

It claims to have a strong order intake of $7.1bn, driving significant backlog growth to $8.1bn. Alongside new deals in traditional energy, Petrofac has also posted a series of contract wins in the renewable energy segment.

Where from here?

Having spectacularly slumped from a reliable dividend stock to a high risk/reward penny stock, the pros of holding on to (or buying more) Petrofac shares, however strong, carry baggage.

Firstly, tough negotiations with its creditors, which will likely include substituting debt for equity, may dilute Petrofac’s value further for investors in the near-term. But returns may eventually follow for those playing the long game.

Secondly, practically every service project Petrofac is embarking on will be pegged to performance-guarantee requirements from clients. That can only be a good thing, in my opinion. It’s something a company in survival mode cannot afford to ignore, but there’s no guarantee that it will.

Thirdly, having been given a lifeline by creditors, Petrofac is speeding up the sale of its “non-core” assets. While good, further clarity is needed beyond its Thai Oil clean fuels project retreat.

Fourthly, at rock-bottom prices, a suitor may yet emerge to lift Petrofac’s share price. Or maybe not: just ask Wood Group, whose well-advanced takeover talks with Sidara collapsed recently owing to “market conditions.”

Overall, things are finely poised for Petrofac. Opinion is divided among analysts based on the outcome of the four factors I flag, with caution being expressed by brokers like JPMorgan and Berenberg.

My average holding price is just below 60p. It is a level at which I have much to lose by selling Petrofac at current prices. A debt-to-equity conversion may be on the cards, carrying dilution risks for existing shareholders like me. But it’s a risk I am willing to stomach with a longer-term view.

The post Why I believe beleaguered penny stock Petrofac is worth holding on to appeared first on The Motley Fool UK.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Gaurav Sharma owns shares in Petrofac. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Sustainable or ‘green’ investing via a Stocks and Shares ISA is a personal and often emotive choice. However, these days going green does not mean having to forego healthy returns.

Several sustainable investment trusts offer opportunities for a stable income. These closed-end entities, designed to invest in a range of sustainable assets, often iron out the volatility that individual sustainability shares may be subject to.

When selecting which ones to invest in, I examine their dividend yield and net asset value (NAV) per share, or total assets minus liabilities, divided by the number of issued shares. So, if a trust’s shares are trading at a discount, then it provides an indication that its share price is lower than its NAV per share.

This discount suggests the market values securities/assets in the trust to be below their comprehensive NAV value. It may offer an opportunity for profiting through higher value realisation later in the trading cycle while banking potentially regular dividends.

My three top picks are:

1. NextEnergy Solar Fund

As its name suggests, NextEnergy Solar Fund (LSE: NESF) invests in large scale solar farms and related technologies like energy storage. This FTSE 250 fund currently has a 10.32% yield and aims to provide shareholders with regular quarterly dividend payouts.

It offers investors a diversified asset portfolio to mitigate risk. Additionally, most of NextEnergy Solar Fund’s long-term cash flows are inflation-linked via UK government subsidies, providing a further layer of income protection. Its NAV discount is currently at 32.78%.

2. Octopus Renewables Infrastructure Trust

Octopus Renewables Infrastructure Trust (LSE: ORIT) is an impact fund that combines income returns with capital growth, by primarily investing in a portfolio of renewable energy assets across the UK and Europe. With a diverse portfolio like many of its peers, this fund also participates in active renewables construction and management.

Through its investment manager, Octopus Energy Generation, it also plays an active role managing renewables construction risks and maximising the value of its portfolio. It prioritises social and environmental benefits alongside financial returns. It has a current yield of 8.5% and a NAV discount of 36%.

3. The Renewables Infrastructure Group

Managed by InfraRed Capital Partners, The Renewables Infrastructure Group (LSE: TRIG) was one of the first investment trusts to move into the sustainability sphere. More than a decade on from its 2013 listing, it is now a FTSE 250 company.

Its portfolio comprises of onshore and offshore wind farms and solar parks in the UK and Europe. This trust generates sustainable returns with a current yield of 7.24% and a NAV discount of 24%. Its managers also retain some of their portfolio’s capital each year through reinvestment of surplus cash after payment of dividends.

Pros and cons

Investors may need to do background research and gauge their suitability in line with investment objectives and risk appetite. For me, current holdings of all three trusts highlight long-term investments in sustainability and revenue reserves for maintaining dividends in learner times.

However, some investors may find their double-digit NAV discounts disconcerting despite their attractive pricing and dividend yields. Equity-focused trusts in other sectors may offer higher returns. Ultimately, their competitive dividend yields that match returns from mainstream investment trusts and low-cost entry barriers appeal to me. Therefore, I will be buying more of these three trusts’ shares.

The post 3 top investment trusts that ‘green’ up my Stocks and Shares ISA appeared first on The Motley Fool UK.

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Gaurav Sharma owns shares in NextEnergy Solar Fund, Octopus Renewables Infrastructure Trust and The Renewables Infrastructure Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

My broader investment strategy incorporates the risk/reward permutations and passive income potential offered by many energy shares.

But during phases of heightened market volatility, I turn to energy investment trusts instead of individual shares.

These are companies structured as closed-end entities designed to invest in a range of energy equities, assets and debt. In unpredictable climes, their portfolio diversity may offer risk mitigation and a stable income.

In choosing these, apart from chasing income from dividends, I pay close attention to their net asset value (NAV) per share, or total assets minus liabilities, divided by the number of issued shares. So, if a trust’s shares are trading at a discount, then it provides an indication that its share price is lower than its NAV per share.

The discount suggests the market values securities/assets in the trust to be below their comprehensive NAV value. It may offer an opportunity for profiting through higher value realisation later in the trading cycle for a cyclical sector like energy while banking potentially regular dividends.

My two top picks are:

1. Blackrock Energy and Resources Income Trust

Managed by BlackRock, Blackrock Energy and Resources Income Trust (LSE: BERI) has been around for nearly 20 years. I regularly turn to it for dip-buys as well as profit realisation on a future upswing at high points in the energy cycle. It offers relatively stable quarterly dividends with a current yield of 4.15%.

Capital growth and income objectives are achieved by investing primarily in the securities of companies operating along Blackrock Energy and Resources Income Trust’s three investment pathways – traditional energy (30%), energy transition (30%) and mining and resources (40%), including transition minerals and metals.

I like this trust’s agility and global energy equities exposure. Its top holdings include Glencore, Vale, Shell, NextEra Energy and RWE. Finally, its NAV discount is just north of 13%.

2. Triple Point Energy Transition

Triple Point Energy Transition (LSE: TENT) features regularly among the 20 highest dividend-yielding investment trusts, with a current yield of over 8%. This energy trust mainly invests in UK renewable energy assets with “high quality counterparties” that provide its shareholders with an “attractive, long-term income source with a positive impact”.

It generates investor returns by focusing on three key areas: distributed energy generation, energy storage and distribution, and onsite energy generation and efficient, low-carbon consumption.

Its 60-40 debt and equity investment split has been a source of stable income for me in recent years. I also view it as a dip-buy with a long-term investment potential and an attractive NAV discount of 30%.

Pros and cons

Current portfolios of both trusts highlight long-term investments in energy transition companies and assets. Their NAV discounts are attractive and not alarming. Both have a revenue reserve, or money put aside in good years, to dip into in their lean years in what is a very cyclical sector. So, I believe they are likely to maintain dividends over the long term.

Investors may need to do background research and gauge their suitability in line with investment objectives and risk appetite. Trusts in other sectors, e.g. some REITs, may offer higher returns. Energy remains a cyclical business and trusts in the sector aren’t immune to cyclical headwinds. But for me, on balance, the pros of buying outweigh the cons.

The post My 2 top energy investment trust picks for a passive income appeared first on The Motley Fool UK.

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• The FTSE 100 looks a lot like the late ’90s. Are we heading for a 2000-style crash?
• How to invest £10k in S&P 500 dividend stocks to target a £2.3k annual second income

Gaurav Sharma owns shares in Blackrock Energy and Resources Income Trust, Triple Point Energy Transition and Shell.  The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

For a while, Diversified Energy Company (LSE: DEC) seemed like a stable bet for investors. Its journey – from an AIM-listed minnow in 2017 to a FTSE 250 stock with a dividend yield of 10-12% by 2020 – was spectacular.

However, of late, things have become muddled. Diversified Energy’s share price has steadily declined, media headlines have been unkind, and its business is being questioned by Democrats on the US Congress’ Energy and Commerce Committee.

That business is one of buying ageing natural gas and oil wells with a low-decline profile. Diversified Energy follows this by hedging their expected production for several years out and keeping shareholders happy with high-yield quarterly dividends.

Yield up, stock down!

Holdings of over 65,000 wells have made it the fourth-largest methane emitter among US oil and gas producers. Therefore, regulatory and media scrutiny is inevitable.

But under the weight of it, the stock has tanked by over 60% in 12 months, pushing its yield above 30%. Such a high yield and cheap share price is more concerning than exciting.

The price slump is also in step with a revenue decline of 10%, albeit after three years of growth. With pressures on its balance sheet, Diversified Energy’s dividend would have had to come down in the absence of an asset sale. Cue its promptly announced January sale of $200m in assets!

So, does this indicate Diversified Energy is on borrowed time before an imminent dividend cut and price correction? Not quite, as I believe an improvement in wider metrics is on the horizon.

New York calling

That sale – of producing assets in Appalachia – is a deft spin-off arrangement designed for breathing room. Or as Diversified Energy says: “to unlock additional value from our assets, reduce outstanding debt, and enhance liquidity.” It has retained a minority stake and will continue to operate the assets.

The proceeds may bring a headline debt reduction of 12% with a repayment of outstanding borrowings under its sustainability-linked revolving credit facility. And the move follows an earlier event of much greater significance – Diversified Energy’s December listing on the New York Stock Exchange, and a 1-for-20 share consolidation in the UK (with adjusted declared dividends).

According to CEO Rusty Hutson, this will further its ambitions of accessing US funds and high net-worth American equity investors. It may also bring a turnaround in perception and better capitalisation.

Where from here?

Of course, caveats apply. Diversified Energy operates in a cyclical market. If energy prices slump, such overtures and hedging can only protect revenue to an extent. It has a large debt pile. Ongoing political issues may remain a turn-off for some.

But it has won awards from two independent emissions monitoring programmes for the transparency of its reporting. I also doubt posturing from Democrats on a Republican-led congressional committee can cause Diversified Energy any lasting reputational damage.

Additionally, squaring Diversified Energy’s end-of-life well closure programme against costs suggests it may be debt-free within 10 years. That’s significantly short of the average life of its viable wells of 50 years, some of which I have visited with Hutson.

So, whilst not increasing my holdings for now, I am not heading for the exit door either. Diversified Energy is not on borrowed time but borrowed patience from investors. A rejigging of finances in 2024 with a US listing may reverse its share-price performance.

The post Dividend yield over 30%, shares down 60%: is Diversified Energy too risky? appeared first on The Motley Fool UK.

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Gaurav Sharma owns shares in Diversified Energy Company. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Recent announcements by Rolls-Royce (LSE: RR) on plans for improving its bottom line are clear — the stock market’s response duly reflected in the blue-chip’s share price is even clearer.

I bought shares in this aerospace and engineering giant over Q4 2020 at an average price of 81p and held firm. Three years on, I am seeing gains of over 235% and a price above 270p.

But as Roll-Royce inches closer to the 300p share price mark – a level it hasn’t touched since June 2019 – is it worth cashing out with its price-to-earnings (P/E) ratio of over 137? Has an opportunity to buy low perhaps passed with limited future gains?

The answers depend on investment horizons. Eyeing its long-term potential, I am inclined to buy more. Or at the very least hold firmly on to the shares I already have in my portfolio. Here’s why.

Targeting a “step change”

CEO Tufan Erginbilgic kick-started Rolls-Royce’s turnaround in January 2023 when he joined the company. This has since gathered further momentum.

At the company’s recent capital markets day, Erginbilgic announced his ambitions of quadrupling Rolls-Royce’s profits by 2027 and making it “financially stronger and more resilient”.

Targeting a “step change”, within five years, Rolls-Royce wants to deliver an annual profit of £2.5-2.8bn at an operating margin of 13-15%. Free cash flow is forecast in the £2.8-£3.1bn range. The FTSE 100 company also hopes to deliver savings of £400-£500m over the medium term.

Additionally, plans are afoot to sell around £1.5bn of its assets and re-allocate the proceeds to business areas where Rolls-Royce can generate better returns.

Unsurprisingly, across key business divisions, Civil Aerospace – with a bulging multibillion dollar order book and very little competition – will be the biggest investment beneficiary. Its operating divisional margins are expected to improve from 2.5% in 2022 to 15-17% by 2027. And there’s more.

Futureproofing and flying high?

Rolls-Royce is making a big push on sustainable aviation fuel (SAF) to futureproof its business. Its flagship Trent 1000 aircraft engines recently powered the world’s first transatlantic flight run entirely on SAF, in partnership with Virgin Atlantic. Last year, it tested a hydrogen-powered jet engine with easyJet.

While plans are afoot to sell electrical aircraft engine and automated transportation systems businesses “at the right time and price”, there’s renewed faith in Rolls-Royce Power Systems, with the 2027 margin target set at 12-14%.

The division includes sustainable power brand mtu and sits happily alongside Rolls-Royce’s small modular reactors (SMRs) venture for nuclear energy.

Rewards versus turbulence

To me, Roll-Royce’s headline targets look achievable. Its approach to sustainability and cleantech also seems realistic. These may provide a share price increase to 300-350p, which is a range it’s currently just shy of. I am also expecting a nominal / very low yield “re-starter” dividend at some point.

Caveats do apply. While corporate targets may appear achievable, a lot will be riding on Rolls-Royce’s cyclical civilian aerospace business. It won’t fully shake off the Covid downturn until late 2024. That’s why near-term price gains will likely be limited beyond 300p.

Rolls-Royce is still verging on a negative equity position, i.e. its liabilities outweigh its assets. So, I also doubt there will be any dividends offered before the end of 2024 either.

On balance, I believe the worst to be over for Rolls-Royce, and its recent share price gains may be sustained. Furthermore, its long-term potential convinces me to add more to my portfolio.

The post Could Rolls-Royce retain its share price gain and more? appeared first on The Motley Fool UK.

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Gaurav Sharma owns shares in Rolls-Royce. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

In keeping with a profitable long-term investment strategy, I often turn to FTSE 250 energy stocks.

Several energy and oilfield service mid-caps offer potential stock valuation gains along with dividend income.

But one that really captures my attention is Hunting (LSE: HTG).

The company is loosely placed in an energy mid-cap grouping, given its huge operational footprint of servicing the sector. But Hunting is neither a producer like Harbour Energy nor a contractor like Petrofac, even if it may offer engineering products to both.

In fact, a bottom-up analysis of its business plans and product suite points to a customer outreach well beyond energy industries. This bodes well for Hunting’s long-term future, and may mean there is significant growth potential from its current share price.

From the ocean bed to infinity and beyond!

For starters, the company’s three “core” business product segments — resource well construction, completion and intervention, and its Titan products suite — have plenty of established customers worldwide.

Its decades-old Oil Country Tubular Goods (OCTG) business — casing, tubing, piping and pipelines used for hydrocarbon extraction — is currently in a cyclical upswing, amid relatively higher energy prices. Company estimates point to a year-end 2023 EBITDA of $99.5m, rising to $130.6m in 2024 and $163m in 2025.

But it’s Hunting’s “medium-term growth strategy to 2030” – predicated on maintaining its “robust non-oil and gas revenue” supported by “strong energy market” takings (of the sort seen in 2023) – that makes things really interesting for me.

Its precision engineering product suite now stretches from subsea to space. That sees Hunting partner with Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin to manufacture components for their rockets just as comfortably as it does with oil and gas companies for their drilling operations.  

At its recent capital markets day in September, Hunting’s order book and tender pipeline stood at $500m and $1bn respectively. That’s a strong backdrop for the business and a glimpse of future revenues.

Steady stewardship matters

Hunting also benefits from an astute, pragmatic and hands-on CEO in Jim Johnson. In my various conversations with Johnson over the years, I have always found him enthusiastically outlining pathways for future-proofing the company he joined 35 years ago, ultimately rising to the CEO’s office in 2017.

That strategic long-term thinking is making Hunting’s products as mission critical for rockets as they are for rigs! Johnson’s steady pair of hands are also overseeing an “inexorable direction of travel” to revenue accretive emerging markets. Recent moves include expansion in the Middle East and a joint venture in India.

With Hunting literally going places, for me this dividend stock appears undervalued by around 40%. That’s based on valuing the company at £660m ($815m) or five times its projected 2025 EBITDA, versus its current market capitalisation of £480m.

Caveats do apply. An oil price slump below $70 per barrel could serve as a near-term drag. The current high interest rate climate and inflationary pressures will likely limit the potential for medium-term share price gains beyond 450p. Income seekers may not be satisfied with Hunting’s 3% dividend yield.

But overall, I see more pros than cons, and a company with a diverse product portfolio gearing up for an exciting future. Therefore, I am inclined to buy more of its shares.

The post Why FTSE 250 regular Hunting may be undervalued by 40% appeared first on The Motley Fool UK.

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• 5 years ago, £5,000 bought 1,231 Aviva shares. But how many would it buy now?
• 5 years ago, £5,000 bought 3,185 Marks & Spencer shares. But how many would it buy now?
• Is the 8.7% yield on this FTSE 250 stock too good to be true?
• The FTSE 100 looks a lot like the late ’90s. Are we heading for a 2000-style crash?
• How to invest £10k in S&P 500 dividend stocks to target a £2.3k annual second income

Gaurav Sharma owns shares in Hunting. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Global oil prices continue to flirt with $100 per barrel levels. Production cuts by Saudia Arabia and Russia, coupled with geopolitical tension in the Middle East, have lifted oil prices. And with it, the fortunes of energy dividend stocks like FTSE 100 oil major BP (LSE: BP.).

Its shares have risen by 14.5% year-to-date in 2023 in step with a 4%-plus dividend yield. But rather than being overjoyed as a long-term investor, I believe the current climate has helped BP mask over three years of undervaluation.

Were it not for poor strategic choices, messaging, and the unceremonious departure of CEO Bernard Looney in September, BP’s upside may well have been — and could still potentially be — higher under a different boss.

Tedious Looney tunes

Looney’s stewardship of BP was bewildering at times and made it a laggard among peers. From his first day in office in February 2020 to his last in September 2023, BP’s shares rose by around 7% on average.

By contrast, over the same period Shell posted gains of around 26%, Chevron of around 50% and ExxonMobil of around 85%. So, why weren’t markets taken in by BP? Because none of the tieless analysts’ conferences and barrages on social media by Looney on how to “Reimagine BP” cut through.

From my perspective, all Looney offered was platitudes on energy transition only too common in the market and overpayments for renewables leases to jump on a bandwagon.

And yet, it’s the company’s core hydrocarbon assets that sustain its earnings and dividends. Even Looney once noted: “When the market is strong, when oil prices are strong and when gas prices are strong, this is literally a cash machine.”

So, if reimagining BP for shareholders was the idea, Loney’s muddled gospel was anything but. For shareholders, clear messaging is just as important as focusing on a price-to-earnings (P/E) ratio, where BP isn’t quite setting the pace either.

Versus a FTSE 100 median P/E of 12.5 and rival Shell’s 8.5, BP’s P/E comes in below 7!

Unlocking value or more of the same?

A new CEO could create share-price gains by enhancing a push into viable natural gas projects and investing in keeping oil production stable.

Additionally, s/he may offer a more pragmatic vision for phased and strategic investments in the energy transition. One that doesn’t include overpaying for renewables leases in the current high interest rate climate.

Sounds familiar? Because it is! Rival Shell is already doing so and more. So, can the incoming BP boss embark on a similar unlocking of value for me to add more shares to my portfolio?

If s/he does and oil prices remain elevated north of $75, for me a 100% jump from BP’s current share price to around 1,100p beckons over a 12-month period, as well as a P/E ratio closer to the current FTSE 100 median.  

Caveats do apply. BP’s board may like the company’s current direction notwithstanding its lagging share price. They could bring in someone who keeps BP on Looney’s path. The oil market may also cool down faster in 2024 than many imagine. Both would precipitate a share price decline that would make me reconsider my holdings.

The post Will the next BP CEO convince me to buy more of this dividend stock? appeared first on The Motley Fool UK.

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Gaurav Sharma owns shares in BP and Shell. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Staring at human lockdowns and declining industrial activity in March 2020, companies of all shapes and sizes scrambled to denounce, if not ditch, big bad oil and gas. Many issued grand proclamations about reducing their reliance on hydrocarbons and expanding their renewables footprint. FTSE 100 energy major Shell (LSE: SHEL) was no exception. 

In 2021, Shell announced that it would cut oil production by 1-2% per year to 2030 and increase renewables investments. I thought the idea was half-cooked and unworkable in the near term. Given the cyclical nature of the market, could anyone seriously believe crude prices and demand would stay rock bottom forever?

Knowing that the bulk of Shell’s revenues would still come from oil and gas for quite a while yet, I kept the faith as a long-term investor.

Its share price subsequently recovered from 900p at one point in 2020 to the current levels of over 2,600p. This was in no small part due to the war windfall created by Russia’s invasion of Ukraine in 2022 and global fears over energy security. And further gains may be on the horizon thanks to one man – Wael Sawan, Shell’s relatively new CEO.

It took a ‘Wael’!

In January, Sawan gave clear signals to investors that intelligent thinking on energy transition demands careful investments in a wider renewables business, and not running roughshod over the company’s primary offerings – oil and natural gas.

By June, Sawan had ditched Shell’s pledge to progressively cut oil production to 2030, hiked the dividend by 15% (to ~33 US cents or 26.1p per share), and lifted its share buyback program to “at least” $5bn (up from $4bn in recent quarters).

The company also dumped its European home retail power business, once promoted by Sawan’s predecessor Ben van Beurden as a key energy transition vehicle.

Investors may regard such overtures to be ‘price positive’ on their own. But it is Sawan’s robust messaging that leads me to anticipate further share price gains in the region of 15-17% from Shell’s current levels of ~2,600p.

Market imbalances created by Russia and Saudi Arabia’s production cuts of 1.3 million barrels per day and chronic underinvestment in hydrocarbon projects during the Covid years may spark a near-decade long supply deficit. It could in turn create a short-lived oil price spike past $100 per barrel as well as prevent prices from plummeting to 2020-levels. This modest middle ground will likely keep Shell’s oil and gas return on investment (ROI) strong.

Some ‘crude’ caveats

Of course, it’s not all rosy. Instead of financing its operations from issuing debt, Shell appears to be focusing on free cash flow generation. This is a good risk mitigation strategy albeit one tinged with slower growth. The issue of stranded oil and gas assets never goes away. But that is a couple of decades away, if not more.

The dividend payout is still around 30% lower than what it was pre-Covid, too. Shell’s current price-to-earnings (P/E) ratio is around 7.91. It’s still higher than BP’s P/E of 6.41 but well below the wider FTSE 100’s average of 11x.

Overall, Shell will now focus on “performance, discipline and simplification” to achieve a balanced energy transition, according to its CEO. That gives me enough confidence to add more of its shares to my portfolio.

The post Will Shell CEO’s robust messaging fuel gains at FTSE 100 energy giant? appeared first on The Motley Fool UK.

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Gaurav Sharma owns shares in BP and Shell. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.